Bank of England interest rise: How will it impact fixed, variable, tracker, SVR mortgages?

Pound: John Redwood discusses role of Bank of England SUBSCRIBE Invalid email We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info The Bank of England has been increasingly raising its Base Rate over the course of the year in a bid to curb rocketing inflation. Interest rates are increased to discourage spending and reward saving, however, with higher rates can come higher mortgage repayments, which undoubtedly come as a concern to homeowners and potential investors. The Base Rate has now increased a further 0.75 percent to three percent, the highest level in 33 years. This comes after Consumer Price Inflation (CPI) rates soared once again in the year to September as rising food prices pushed inflation rates back to a four-decade high of 10.1 percent. But while the interest rate increase has been implemented to help temper price rises and bring inflation back down to the Government’s two percent target, it will inevitably add further pressure to many households – especially during a time everyone is feeling the financial pinch. How will the Base Rate rise impact mortgages? Laura Suter, head of personal finance at AJ Bell said: ‘Generally the interest rate charged on new mortgages rises as the Base Rate increases. However, you’ll often find that mortgage rates rise before Base Rate has increased. READ MORE: Top 10 high interest regular savings accounts now Millions to see mortgage rates rise immediately as BoE bumps rate to 3% – ‘Rise overnight’ ‘Mortgages are priced based on a number of different factors, including competition in the market but also the cost of the money mortgage companies borrow to then lend out to borrowers – whether that’s from savers’ deposits or the wholesale market.’ Sarah Coles, senior personal finance analyst at Hargreaves Lansdown weighed in: ‘The mortgage market has been driven most recently by gilt yields, and as they have fallen back, mortgage rates have eased off very slightly.’ Given that the 0.75 percent rate was widely expected and therefore priced into the market, it may not change the picture significantly, according to Ms Coles. She said: ‘The potential closing of the gap between the SVR and fixed rates could persuade some wait-and-see mortgage fixers to pull the trigger – while others may be tempted to hold on to see if a longer period of boring politics and more predictable economics produces slightly lower fixed rates.’ However, the picture might be slightly different for people with variable and tracker mortgages. DON’T MISS: Lloyds offers market-leading 5.25% on regular savings account [INSIGHT] Expert shares tip to reduce mortgage payments ‘over time’ [EXPLAINED] Impulse spending is a thing of the past – shoppers think before buying [ANALYSIS] Homeowners on tracker mortgages can expect their rate to rise immediately READ MORE These top savings accounts all pay more than 5pc – check you qualify Variable rate and tracker mortgages Rising from 850,000 Britons on tracker mortgages in 2021 to the estimated two million there are today, according to Forbes Advisor, they could expect the Base Rate rise to immediately impact their mortgage payments. Ms Coles explained: ‘For anyone on a variable rate mortgage – like a standard variable rate or a tracker mortgage – much of this rate rise is likely to be passed swiftly through into your monthly payments.’ This is because tracker mortgages are designed to rise and fall in line with the Base Rate, with a premium on top. So, people might have a tracker of Base Rate plus one percent. This means that if Base Rate is three percent, people might now be paying four percent. Ms Suter said: ‘Once a Base Rate rise happens, these rates will often rise overnight to reflect that.’ Trending ‘Changed my life!’ Woman secures £4,810 a year by following Martin Lewis tip Many pensioners are struggling on limited income, and as the cost of living continues, millions are worried about making ends meet. But one woman has shared how she was able to secure extra income worth over £4,000 per year, after seeing Martin Lewis on television. Can you use the tip to boost your income? Find out HERE. Providing an example, Ms Coles said: ‘If you have a £250,000 mortgage over 25 years, at the Moneyfacts average mortgage rate of 5.4 percent, and the full rate was passed on, it would mean a rise in monthly mortgage payments from £1,520 to £1,643 – so you would need to find another £123 a month.’ Standard Variable Rate (SVR) mortgages Ms Coles said: ‘For anyone whose fixed rate deal has come to an end who decided to revert to the SVR and wait to see what happens to fixed rates, it could end up causing the kind of headaches you may have been trying to avoid. ‘A Standard Variable Rate (also called a reversion rate) is the highest rate from a mortgage lender and is what you’ll fall onto once your fixed rate deal is up.” However, Ms Suter said: ‘[SVRS] generally go up as Base Rate rises, but not as quickly as with a tracker rate. The mortgage lender will decide whether to increase these rates and will give notice before they do.’ How can borrowers keep mortgage repayments down? Kellie Steed, mortgage expert at money.co.uk commented: ‘Those whose fixed-rate mortgage is coming to an end soon may want to consider changing their deal early to take advantage of interest rates before they increase. ‘However, remortgaging before your current deal ends could mean you’ll need to pay early repayment charges (ERC). You should compare the cost of the ERCs to how much you think you could save by remortgaging, to ensure that switching early is worthwhile.’