This article was written in December 2022.
How much will my mortgage go up following the latest interest rate change?
The economy is in trouble, the country is heading towards a recession, and interest rates are set to be the highest since the global financial crisis of 2007/8. It all sounds rather bleak, and nobody seems confident there’ll be a real solution on the horizon anytime soon.
However, as customers, consumers, and homeowners, we want to know how all of this will affect us.
What is happening to interest rates?
It’s all over the news; we’re amid a cost of living crisis, subject to unheard-of energy price hikes, with interest rates and inflation rising at record rates. To counteract the financial issues we’re facing, the Monetary Policy Committee (MPC) considers how to manage the problem and get the economy back on track. To combat inflation, interest rates are increased, and because we’re facing such serious issues, those rises are happening regularly and at record rates.
The highest rise in interest rates in 30 years
On 3rd November 2022, the Bank of England (BOE) raised its base rate from 2.25% to 3%, the most significant single rise in over 30 years. Why? Because inflation rose to 11.1%, another record, at the highest level for over 40 years.
Sadly, it hasn’t peaked yet, with rises in both inflation and interest rates set to continue over the next few years.
The latest rise, on 15th December 2022, saw it gain another 0.5% to 3.5%. If you’d like to keep up to date with the activity, keep your eye on the BOE announcements, with the next due on 2nd February 2023.
Whose fault is it?
After the financial crisis of 2007, interest rates fell to around 0.5% to support the economy, and there it sat, reasonably steady, for the coming ten years. After that, however, there were several expectations as to when it might rise again. They were high during Brexit, but because of an expected economic slump, rates were cut in 2016 to 0.25% to launch a period of quantitative easing and stimulate economic growth.
However, the UK economy faired reasonably well despite expectations, and the rate returned to 0.5% in November 2017.
In 2018, the base rate rose to 0.75% as matters improved—the highest in almost a decade.
Sadly, it wasn’t to last. With the COVID pandemic giving rise to all kinds of emergency costs and financial issues, the BOE made two emergency cuts in March 2020, first to 0.25% and then again down to 0.1%.
Since COVID, trying to combat inflation and catering to the additional financial issues around the world, we’ve seen an incredible rate of increase to the current 3.5% figure, with further rises expected to reach 4.8% by July 2023.
Bank of England base rate vs mortgage rates
The MPC decides what to do with the BOE base rate every six weeks. The base rate dictates what happens to our savings, loans, and all kinds of borrowing, lending and credit, as the rates the providers charge are directly linked to the latest BOE base rate.
As the base rate increases, interest rates on savings will follow suit, but typically, only slightly. Credit and loan rates will also go up, and in mortgage terms, can deliver substantial rises, creating real problems for borrowers.
How does increasing interest rates lower inflation?
Higher interest rates make it more expensive for people to borrow money, encouraging them to save and spend less. If society buys less, prices rise at a slower pace and slow down the rate of inflation.
When will interest rates go up again, and by how much?
The next BOE base rate announcement will be in February 2023, but by how much precisely, it’s hard to say. The rate is expected to keep rising, reaching a predicted rate of 4.8% by July.
Whether it rises or falls depends on critical factors that affect the economy.
- Inflation
- Recession
- Unemployment
- Economic growth
Will my mortgage be affected by the interest rate rise?
The answer is yes if you have a standard variable or tracker mortgage. For those on fixed-rate deals, you’re safe for the time being, but getting as good a deal when your term runs out might not be so easy.
The good news is that most borrowers don’t feel comfortable taking those kinds of risks. Over 90% of mortgage customers are on fixed-rate mortgages (according to the director of mortgages at Yorkshire Building Society), so there’s that. And, if they’re savvy, they can get ahead of the game with a little effort.
However, there are still somewhere close to 2 million borrowers on variable and tracker rate mortgages. That’s a lot of people heading for higher monthly mortgage repayments.
Tracker mortgages
Tracker mortgages are linked directly to the BOE base rate, so any increases are passed on automatically almost as soon as they’re implemented. Check your mortgage policy for exact timings, but be assured, you’ll be covering the new rate as soon as your provider can action it.
Variable rate mortgages
Variable rate mortgages are a little less predictable, as the final rate they charge is up to them. But, sadly, it’s implausible they’ll ignore any rate rise and are far more likely to pass it on to their customers. Therefore, depending on your mortgage provider, you can expect your rate rise to be slightly more or less than the base rate increase.
Next: does my fixed rate change if interest rates go up?
Fixed-rate mortgage terms will remain the same for the duration of the deal. However, despite not being affected right away, when the time comes to renew, unless we’re out of the crisis by that time and back into the clear (which is unlikely for most), then getting the same kind of terms looks highly unlikely.
Getting ahead of the game
Fixed-rate mortgage customers can apply for a new fixed-rate deal six months in advance. As it stands, around 1.3 million fixed-rate deals have or will end in 2022. So for them, locking in a preferable new agreement is paramount.
For those approaching the end of a fixed-rate term, it’s time to check your policy and see when your current schedule finishes. Interest rates are predicted to keep rising, so if you can sign up for an acceptable rate now, with a view to its duration starting in another six months when the interest rates are going to be higher, you could save yourself some money.
When will I see the price increase?
As we said, the details in your mortgage contract will tell you precisely what to expect and when. Typically, though, it’s likely to be within a month of any BOE base rate change.
How much is my mortgage going up by?
With so much fluctuation in the market, we visited the possible price increases in an update in September.
Check out our article that discusses how borrowers will likely to be affected throughout 2023 and the possible costs incurred as interest rates rise.
We’ve done our best to answer one of the most popular questions we’re regularly asked: how much more will I pay on my mortgage with increased rates?
In the article, we outlined potential changes to 25-year mortgages from the previous typical rate of 1.5% to rise near the current 4%, and as they grow to the predicted 6%, over various loan amounts.
For example:
Borrowers of £100k are likely to see a monthly increase of £197 at 4% and £374 at 6%.
Borrowers of £200k are likely to see a monthly increase of £262 at 4% and £499 at 6%.
Borrowers of £300k are likely to see a monthly increase of £394 at 4% and £749 at 6%.
How much will my mortgage payments be?
You’ll need to contact your mortgage provider for the exact monthly repayment figures, as mortgage rates vary from lender to lender and policy to policy.
If you’re worried about meeting increased payments, it’s never too early to discuss those concerns with your bank or lender. They should be happy to help you reassess your situation, offering possible solutions and schedules.
What to do if you need a mortgage
Given these unpredictable rates, tracking down the best deals could take a lot of research if you need a mortgage right now. Of course, the high street banks and mainstream lenders are an appropriate place to start. However, there are always better deals available from specialist lenders. These alternative options are only available through finance professionals and expert mortgage brokers, so you might need to do a little more due diligence.
CLS work with a vast range of mortgage providers that aren’t accessible to the public. We arrange mortgages for all types of borrowers and save customers money time after time, whether on a brand new mortgage or remortgaging your home or property.
Summary
It’s a concerning time for mortgage customers; for anyone worried about how the latest rates will affect them, it’s worth contacting your lender before repayments become too troublesome.
For expert advice, CLS is ready to discuss your situation and explain how you can resolve your money worries. So give us a call today to put your mind at rest and take the first step to manage any worrying mortgage issues.
