A second Bank of England base rate rise last week came as no big surprise, but what will the impact be on property owners and savers?
A vote from the Monetary Policy Committee last week led to the base rate being lifted from 0.25% to 0.5%. Meanwhile, inflation in January has also climbed to its highest level for more than 10 years.
Savers might be pleased to hear that the rate rise could be passed onto them, but some mortgage-holders – from homeowners to investors – may be nervous of rising borrowing costs.
The latest data from Moneyfacts confirms that many lenders are inching their mortgage rates upwards since the base rate rise. Not only that, but product numbers have seen a decline after spending 15 months on an upwards trajectory, meaning borrowers could find slightly less choice in the market right now.
Base rate versus mortgage rates
Fixed rate mortgages are often advised for borrowers who want to lock in and ensure predictable payments for a set period of time. While interest rates were low, some borrowers may have been inclined to sit on a tracker rate, but as they begin to creep up this may now be less appealing.
Moneyfacts research shows that between January and now, the average two-year fixed rate has increased from 2.38% to 2.44%. However, this is still lower than a year ago, when this product would have had an average interest rate of 2.53%.
In the five-year fixed rate range, borrowers are now seeing an average rate of 2.71%, up on last month’s 2.66% but, again, down on last year’s 2.73%. So the good news is that, while there may be an upwards trend, rates still remain historically competitive.
Rachel Springall, Moneyfacts finance expert, says: “Mortgage rates are on the rise, and this base rate rise may come as disappointing news to borrowers who are not locked into a competitive rate. Lenders are still launching attractive deals onto the market, so anyone who is still debating on whether to fix may be wise to do so now.
“Those looking for peace of mind with their mortgage payments over the next few years may wish to consider a five-year or even 10-year fixed mortgage to protect them from future rate rises. Borrowers who are sitting on a standard variable revert rate could stand to save a significant sum on their repayments by switching to a fixed rate.”
Less mortgage options to choose from?
There has been a slight fall in product numbers, according to Moneyfacts, with drop of 38 down to 5,356. However, this is a relatively small decline and could, says Eleanor Williams, Moneyfacts finance expert, be a sign that the market is stabilising.
Compared to February 2020, there are still 280 more mortgage deals available now, so borrowers are certainly not short of choice.
Interestingly, the shelf life of each product is longer now, Moneyfacts observes. So while a particular deal may have only been on offer for an average of 28 days last month, lenders are now giving borrowers an average of 42 days to secure a certain rate.
Williams adds: “This could suggest that lenders had already made many of their re-pricing decisions in anticipation of the base rate rise in December 2020 and therefore January saw fewer updates made.
“However, conversely, this lull in activity could be a reflection of lenders holding back on re-pricing decisions in advance of last week’s move, and so it may be a different story next month.”
Securing a fixed rate could save money
The cost of living crisis currently being experienced for many in the UK could also play a part.
“February also saw the average SVR rate increase by 0.05% to 4.46%, so those sitting on their lenders’ revert rate may wish to move swiftly to secure a new fixed deal to protect themselves from potential further increases,” says Williams. “As the cost of living continues to spiral for consumers, those in a position to consider a new mortgage deal may wish to seek advice sooner rather than later.”
Meanwhile, those with savings will also be questioning whether the base rate rise could be passed onto them. But data suggests that, so far, only 28 savings providers have announced changes to their savings rates since the last base rate rise in December.
