Money Wellness
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category iconcost of living
calendar icon22 Jun 2023

Bank of England raises interest rates to 5%

Homeowners face more financial misery following today’s interest rate rise. The Bank of England has announced it is to increase interest rates for the 13th time in a row from 4.5% to 5%.

The increase follows yesterday’s disappointing inflation figures. Despite most experts predicting a drop, these remain stubbornly high. The pace of wage rises has been blamed for fuelling inflation. It’s believed this will continue to affect it going forward.

Mortgage lenders have been anticipating a rate rise for weeks. This has resulted in them withdrawing lower price mortgage products. Two-year fixed-rate mortgage deals have broken the 6% barrier for the first time, up from 2.5% last March, according to Moneyfacts.

Mortgage costs could rise further, with experts saying it’s possible interest rates will rise to 6% by early next year.

 

What the latest rate hike means for your mortgage

If you’re on a tracker, standard variable rate (SVR) or variable mortgage, your payments will rise almost immediately in response to the latest base rate rise.

These mortgages move in line with the Bank of England. This means when the base rate rises, your payments rise. When it falls, your bills fall too.

With 850,000 properties on tracker mortgages and 1.1 million on standard variable rates, one in four mortgage customers have seen their mortgage payments rise every six weeks since December 2021.

After a base rate change, your lender will write to you if your mortgage is affected. Your mortgage contract should explain how quickly changes will take effect.

An increase in the bank rate from 4.5% to 5% will add around £32 to the monthly repayments for a typical variable rate mortgage borrower with a £270,000 mortgage. This comes on top of the previous 12 rises homeowners have already had to swallow.

 

 I’m on a fixed rate mortgage, what does the base rate mean for me?

If you have a fixed deal, you are protected for now. Depending on when it ends, you could find yourself paying significantly more.

Two- and five-year deals are now over 6.0% according to Moneyfacts and are set to rise higher. This compares to 1%-2% a little over a year ago.

 

Should I remortgage now?

If your mortgage is due to end soon, you’ll be able to fix up to six months in advance with some providers.

Transferring to a new deal with your lender, rather than opting for a full remortgage with a new lender, may save time. You may also be able to avoid fees. But you can’t be sure you’re getting the best interest rate on the market – so shop around.

If you’re exiting your deal early, make sure the savings outweigh any fees you have to pay.

 

Some top tips to consider when remortgaging:

  • Move quickly – the top rates are disappearing fast due to the current high demand, so you’ll have to act fast.
  • Charges and fees - watch out for early repayment charges or exit penalties if you’re considering switching before your current deal ends. Other costs include arrangement fees, valuation charges and the cost of a solicitor. It could still work out cheaper in the long run for you to pay the fees and charges, but make sure you crunch the numbers.
  • Use a mortgage calculator: check out exactly how much each mortgage will cost you by using an online mortgage calculator.
  • Shop around for the best deal on the market.
  • Get help: You can get advice from a mortgage broker – they will have access to some exclusive deals.

Avatar of Caroline Chell

Caroline Chell

Caroline has worked in financial communications for more than 10 years, writing content on subjects such as pensions, mortgages, loans and credit cards, as well as stockbroking and investment advice.

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