What does the base rate rise mean for your mortgage?

 

The Bank of England announced a 0.25% increase in the base rate to 0.75%, as widely expected, on Thursday 2 August, marking the first time interest rates have risen above 0.5% since 2008. What will the impact be on mortgage rates and deals available to borrowers over the next few months?

Lenders have begun to reveal when the rise will be passed on to variable rate mortgage borrowers. HSBC, Tesco and First Direct increased their tracker rates the day after the base rate announcement, and Santander, Co-op Bank, Halifax, Barclays and Lloyds have confirmed that their new tracker rates will be implemented in September.

Most lenders are expected to increase their standard variable rate (SVR) imminently. HSBC, Santander, Natwest and RBS have all announced that they will be reviewing their SVR, meaning borrowers will see an increase in their mortgage repayments within a matter of months. Ishaan Malhi, chief executive of online mortgage broker Trussle, said: “…the average homeowner on a variable rate with £200,000 left to pay on their mortgage will see repayments increase by £300 over the course of the year.”

No immediate impact for most borrowers

However, industry experts acknowledge that many lenders had already factored the base rate rise into their interest rates. In reality, the financial impact on householders should be a modest one. Most borrowers with large mortgages are on fixed rates and so will feel no impact until their term ends, and they need to remortgage; only 35% of borrowers are on variable mortgages.

UK Finance and the Building Societies Association have released statements supporting the fact that most borrowers will feel no immediate impact. According to Jackie Bennett, director of mortgages at UK Finance: “The majority of borrowers will be protected from any immediate effect from today’s increase, with 95% of new loans now on fixed rates and almost two-thirds of first-time buyers opting for two-year fixed rate products over the last 12 months.”

While some are fearful of another rate rise this year, indications from the Bank of England governor are that the next one might not be until 2019 at the earliest. For borrowers coming to the end of a mortgage term or looking to buy, the advice is to get a deal secured now while rates are still relatively low and certainly before lenders start accounting for another rate rise early next year.

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