Bank of England Base Rate explained: What does it mean for me and my mortgage?

On the 22^nd of June, the Monetary Policy Committee (MPC) raised the base rate from 4.5% to 5%. But what does that mean? And what is the effect on your mortgage?

Over the last decade we’ve seen historically low interest rates, in fact in 2020, the base rate was as low as 0.1%, meaning that borrowing at this time and fixing your mortgage rate for a long period could have saved you thousands. Prior to the start of the year, interest rates had been consistently at historically low levels, which was designed to encourage borrowing and spending.

Why is the base rate increasing?

The Bank of England are raising interest rates because inflation is too high. May saw inflation at 8.7% whereas their target is 2%.

Raising interest rates is the tool that they have to bring down inflation. There are estimates that the rate may hit 6%, or even higher, by early next year.

What does this mean for me and my mortgage?

It means that once your current mortgage deal ends, you will likely face a much higher interest rate than when you last reviewed your mortgage.

If your current mortgage deal is looking to end in the next 12 months, you have options you can explore now:

• If your mortgage is due to end in the next 6 months
  • Give us a call to look at securing a deal ahead of your deal coming to an end. Some lenders can lock in deals up to 6 months in advance so it might be worth the discussion now, as rates are likely to go even higher.
• On a variable or tracker rate?
  • Contact us so we can discuss if you ditch, switch and save - and act quickly, as current rates are being rapidly reviewed and increased. This is especially likely for those on standard variable rate (SVR) mortgages.
• Unsure of your options?
  • As a mortgage holder, it can be confusing and unclear what the changes mean to you, but if you’re unsure we’d encourage you to pick up the phone and get in touch with us to discuss your current situation so we can advise on the most suitable options.
• If you’re struggling to pay
  • Avoid missing repayments without first speaking to your lender- they may be able to help.
  • With the cost of living increasing, many homeowners are struggling to meet their mortgage repayments. Missing a mortgage payment is known as falling into 'arrears'. You want to try to avoid this as best you can, as it'll have a serious impact on your ability to get credit in future. So, speak to us, or your lender as soon as you can to discuss your options.

Remember, our team of experienced financial advisers are available to provide personalised guidance tailored to your specific needs and circumstances.

If you would like to discuss your financial situation further, please do not hesitate to contact us here >

Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.