What does the Bank of England interest rate rise mean for you?

The recent increase in interest rates by the Bank of England has affected 2.2 million homeowners in the UK who have variable-rate mortgages. These individuals are also facing higher fuel and energy bills. Half of these homeowners are on a base rate tracker or discounted rate, while the other half pay their lender's standard variable rate (SVR). The rise in interest rates means that monthly mortgage payments would increase by ￡41 on a ￡150,000 mortgage with 20 years left if they are on a 4.5% tracker mortgage. The SVR may also increase, but not necessarily by 0.5 points.

?However, 6.3 million UK homeowners, or three out of four, have fixed-rate loans, which protect them from interest rate hikes until their deals expire. Many of these deals will be expiring soon, with 52,000 sets to end in February and March.

Getting a mortgage has become more expensive due to the recent interest rate hikes. In September 2022, a financial shock caused by a mini-budget led to the withdrawal of 1,700 mortgage deals, causing two and five-year fixed mortgage rates to peak at 6.65% and 6.51% in October. However, lenders are now competing again, causing rates to come down. The average two-year fixed rate is now 5.44%, and 5.2% for a five-year fix.

Fixed rates have declined from their post-mini-budget highs, and it is expected that this trend will continue, making mortgage costs potentially cheaper than a few months ago. Nevertheless, rates are still higher than in recent years, and homeowners with expiring deals need to plan ahead. Those who think the Bank's interest rate hikes will end soon are seeking tracker or variable-rate loans when buying a home or remortgaging, potentially reversing the trend towards fixed-rate deals. The share of people looking for a tracker deal has more than doubled, and in November and December 2022, a fifth of that remortgaging searched for variable-rate deals. For those buying a home, the share of searches for tracker deals rose from 7-8% in December 2021 to 24-21% a year later. Some borrowers prefer the security of a fixed rate, knowing exactly what they need to pay on their largest outgoing. Currently, fixed rates are at their lowest level since the mini-budget.

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At Limitless Financial Services we recommended locking in a rate as early as possible, this protects you against any future rate rises. Should rates fall before your mortgage change-over date, we can change products to the lower rate for you.

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If you would like to book an appointment with the team, you can get in touch at 0208 049 7500 or by emailing?[email protected]