The Bank of England has raised interest rates to 4 per cent in a blow to millions of households already struggling with rising bills.
The Bank’s Monetary Policy Committee (MPC) increased the base rate by 0.25 percentage points from 3.75 per cent, marking the first rate rise since August 2023.
The base rate influences the interest charged on mortgages and for homeowners on variable deals, the increase will mean a rise in their monthly repayments almost immediately.
Those coming off fixed deals and locking into new rates could also see a jump in their bills, with both two and five year average fixed deals now hovering around six per cent.
The Bank’s decision comes as policymakers grapple with stubborn inflation, which increased to 3.5 per cent in September – well above the Bank’s target of 2 per cent.
Higher energy prices and concerns about inflation remaining considerably over target have increased pressure on the Bank to raise its base rate.
What does the interest rate rise mean for mortgages?
Around 2.3 million more households are due to come off fixed deals by the end of 2027, official data shows, and face much higher bills when it comes to remortgaging.
Many borrowers secured mortgages during the period of historically low interest rates – some on to rates as low as two per cent – and could see their monthly repayments rise by hundreds of pounds.
Now, according to Moneyfacts, the average two-year fixed mortgage rate was 5.97 per cent at the beginning of November, while the average five-year fix was 6 per cent.
However, fixed mortgage rates are largely influenced by financial markets’ expectations of future interest rates, rather than simply following changes to the base rate, and means lenders may have already priced in today’s increase.
This means fixed-rate mortgage deals won’t necessarily become more expensive immediately.
David Hollingworth, associate director at mortgage broker L&C Mortgages, said: “When the base rate hit 4 per cent just over a year ago, borrowers were able to secure fixed mortgage rates well under 4 per cent.
“Today’s borrowers will be wondering what has changed to make for such a radical difference when there’s so little change to the base rate. It highlights just how reliant fixed rates are on market sentiment and where rates may be heading, rather than the current level.”
But he warned that borrowers coming off five-year fixed deals could face a substantial increase in their monthly repayments.
“The sheer scale of the change in rates since late 2021 means that those coming to the end of a five year fixed rate will have to steel themselves for a big hike in mortgage rates.
“Preparing in advance will help to understand the potential options. That won’t make them easy to take on but can at least secure some certainty before the current deal ends.”
Homeowners approaching the end of a fixed-rate deal can often secure a new mortgage offer up to six months in advance, protecting themselves against further increases. Some lenders will also allow borrowers to switch to a cheaper deal before their new mortgage begins if rates fall in the meantime.
Borrowers approaching remortgage are advised to lock in a new deal as early as possible, before lenders hike rates again in anticipation of further base rate rises.
However, borrowers face a difficult decision over whether to choose a two-year or five-year fixed mortgage.
A shorter fix could allow homeowners to switch to a better deal sooner if interest rates fall, while a five-year deal provides greater certainty over monthly repayments.
Nouran Moustafa, independent financial adviser at Roxton Wealth, warned against automatically opting for a shorter fix in the hope of lower rates in two years’ time.
“Two-year fixes offer flexibility if rates fall, but borrowers risk refinancing at higher rates in 2028. Five-year fixes provide longer certainty – although early repayment charges can make moving expensive.”
She added that borrowers should choose a mortgage based on their personal circumstances rather than predictions about future interest rates.
What if I’m on a tracker or variable-rate mortgage?
Unlike fixed-rate borrowers, homeowners with tracker mortgages will typically see their repayments rise following today’s announcement.
That’s because these mortgages follow the base rate, usually with an additional percentage added by the lender.
For example, someone with a £200,000 repayment mortgage over 25 years could see their monthly payments rise by around £28 if their interest rate increased from 4.15 to 4.4 per cent.
While that would be painful short term, some brokers are suggesting that a tracker could be better long term if rates start to come down again, depending on your circumstances.
Samuel Mather Holgate, managing director of advice firm Mather & Murray Financial, said: “For borrowers who can tolerate some uncertainty, a tracker mortgage could prove considerably better value, particularly if inflation pressures ease.”
Borrowers on their lender’s standard variable rate (SVR) could also face higher repayments, although lenders decide whether and how much of the increase to pass on.
Moneyfacts figures show the average SVR is currently 7.13 per cent, which is substantially more expensive than the average fixed-rate mortgage.
Borrowers on an SVR may be able to make significant savings by switching to another mortgage deal, although the best option will depend on their circumstances.
Hence then, the article about bank of england hikes rates to 4 what it means for your mortgage was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
Read More Details
Finally We wish PressBee provided you with enough information of ( Bank of England hikes rates to 4% – what it means for your mortgage )
Also on site :