In recent weeks there has been much speculation that the Bank of England Base Rate was going to increase, meaning interest rates for mortgages were likely to follow suit. The Monetary Policy Committee (MPC) had their monthly meeting on Thursday 4th November and decided that the Base Rate will remain at the record low 0.1%, which has been in place since March 2020 following the Coronvirus Outbreak.
The MPC decided to reduce the Base rate to 0.1% after COVID hit to ‘soften the blow’ on the economy, which has lead to a surge in house purchases and subsequently record high average house prices. This was only ever meant to be a temporary change, so an increase to the base rate at some point was inevitable. It became clear that in Chancellor’s budget that inflation is expected to peak at 5% in April 2022 meaning an increase in the base rate in the coming months is highly likely.
What could this mean for mortgage interest rates?
The base rate tends to influence what rates lenders are offering as it affects what it costs them to lend the money to you. As there was so much speculation into the potential increase to the base rate we’ve seen lenders increase their interest rates in the last 4 weeks to factor in the potential increase.
An increase in the base rate would affect those borrowers who currently sit on a variable rate mortgage whether that be on the lenders standard variable rate, discount rate or tracker. Lenders set their ‘standard variable rate’ in line with the base rate so it’s likely that these will increase in line with a future base rate increase. If this happens, those on a variable rates pay more.
Borrowers who are currently in a fixed rate period will not be affected by an increase, however they could find rates are higher once their current interest rate expires.