BOE v Mortgage Rates

The Bank of England Base Rate is currently 3.5%. This is an increase from 3% on 15^th December 2022. The 0.50 percentage point increase marks the ninth rise since December 2021, when the BOE rate was only 0.1%. This raise puts the base rate at its highest since November 2008. When this rate changes, it can have an effect on mortgage interest rates.

A common misconception is that mortgage rates rise and fall in line with BOE base rate changes. In fact, mortgage interest rates are set by mortgage lenders directly and are impacted by both swap rates (the interest that banks charge each other) and the Bank of England base rates, as these two factors affect how much the lenders themselves have to pay to borrow money. So, although BOE base rate can impact on mortgage rates  there is not a direct and reflective correlation between the BOE rate and Mortgage rates. For example, if the BOE rate rises by 1% this will not necessarily mean that all available mortgage products will cost 1% more to consumers.

The impact to you by any change in mortgage interest rates will depend on the type of mortgage you currently have, the amount you’ve borrowed and how long you’ve taken it out for. There are various types of mortgages, and some are more affected by changes in interest rates than others. Whether you’ve got a mortgage or are thinking about applying for one, it’s worth seeing which one is most beneficial to you.

A fixed-rate mortgage is self-explanatory. You agree a fixed term and interest rate with your lender, depending on what they are offering at the time of applying for the mortgage. Which means if mortgage interest rates go up, your payments stay the same for the duration of the product you have selected. However, this works in reverse too – you don’t benefit from lower repayments during your fixed period if rates go down.

A tracker mortgage “tracks” the BOE base rate, so is directly affected should BOE rates rise or fall. If you haven’t applied for a new tracker or fixed-rate mortgage before your current tie-in period ends, your mortgage will automatically be moved on to the lenders Standard Variable Rate (SVR). SVR is usually higher than the lenders current fixed or tracker mortgage rates and can cost you hundreds of pounds more every month than your current mortgage. However, if you arrange a mortgage using our services, we will always ensure that we review your mortgage and arrange a new application so that you never move onto your lenders standard variable rate. Click here to learn more about our Mortgage Pledge.

If you’re concerned about the impact of the recent change in mortgage rates, or you simply want to discuss your mortgage options, please contact our professional, friendly advisers who are on hand to support you and can help you explore all your options.