Today the Bank of England announced that they will be increasing their base rate to 3%. The recent and quite frequent base rate rises that have happened over the last few months have had a huge impact on spending and saving across the country. Where will rates go next? Is raising the base rate actually making any difference? What does this mean for mortgage rates?
The Bank Of England Base Rate
The BoE base rate is the rate at which the central bank of England charges financial institutions interest on borrowing. So, lenders like banks and building societies will be charged a rate of interest on the money they lend by the bank. In order to make a profit, the lender will then charge their own interest rates on top of the rate set by the BoE (the base rate). When the base rate goes up, lenders tend to put their rates up to make up for the loss of income. If the rate goes down, rates from lenders should go down too.
Currently, the UK economy is heading towards a recession as inflation is way above the target rate of 2%. In order to bring inflation down, the BoE has been consistently making base rate rises to make borrowing and spending more expensive and therefore discouraging overspending. Hopefully this will bring inflation down eventually. The base rate had been rising steadily, but because of recent government changes to tax, the bank bumped up interest rates significantly. A knock-on effect occurred, and panicked mortgage lenders increased their own lending interest rates significantly.
Will More Base Rate Rises Affect Mortgage Rates?
Today the BoE raised its base rate again to 3% as inflation is still increasing. No doubt this will mean that the cost of food, drink, utility bills, and other daily commodities will increase again. However, will this rise affect mortgage interest rates? Of course, it is too early to say definitively if mortgage rates will go up. But we at Oportfolio think that there won’t be too much of a change, if any at all. Why do we think this?
If you read the news coming from mortgage lenders, it’s clear to see that a lot of lenders are actually bringing their rates down! Lenders such as Virgin, HSBC, Santander, Accord, NatWest, Skipton and many more have all re-introduced products to the market that they previously removed and dropping rates. To us, this shows that the lenders are realising that their premature large jump with their interest rates was unnecessary, and things aren’t going to be as dire as first thought.
It seems that lenders have already overcompensated with their interest rates so that any increases to the base rate coming in the next few months have already been covered by the lenders. So, what does that mean? It is unlikely that rates will drop by much if inflation doesn’t go down, but in our eyes, it looks like rates won’t go up either for people on fixed products. But people or tracker mortgages need be watch out!
Speak To A Mortgage Advisor
Whether interest rates go up or down, the best thing you can do right now is speak to a mortgage advisor. If you are a first-time buyer or someone looking to purchase their next house or remortgage, you need professional advice. Call our advisor team today to see how we can help you.