The Bank of England has hiked interest rates to 4% (from 3.5%) in the 10th consecutive rise since December 2021.
The move was widely expected by City forecasters as the Bank’s rate-setting Monetary Policy Committee (MPC) continues to battle rocketing inflation. While slowing in recent months, the Consumer Prices Index (CPI) measured 10.5% in the year to December 2022 against the Government’s target of just 2%.
What does a rate rise mean for home loans?
All mortgage customers on a variable rate deal, which accounts for around two million households according to figures from the Financial Conduct Authority (FCA), will be impacted by today’s rise.
A homeowner with a £200,000 repayment tracker mortgage (priced at 0.47 percentage points above the Bank rate and taken over 25 years) will see their monthly payment rise by around £50 – from £1,052 a month to £1,108.
Those paying their lender’s standard variable rate (priced at a market-average 6.7% according to online broker Better.co.uk) will pay an additional £63 a month from £1,376 to £1,439 – that’s if their lender increases its SVR by the full 0.5 percentage points.
A borrower on a £200,000 repayment mortgage, who has been on their lender’s SVR for the last 12 months, could be paying up to £450 a month more in mortgage costs now compared to December 2021 when the base rate was 0.1%, seeing their monthly repayments rocket from £994 to around £1,450.
Average fixed rare mortgage costs have been falling in recent weeks. But today’s Bank rate rise is likely to further dampen activity in an increasingly subdued housing market.
The rate of annual house price growth slowed from 2.8% in December 2022 to 1.1% in January 2023, according to Nationwide Building Society’s latest house price index. Prices fell 0.6% month on month and are now 3.2% below where they stood in August 2022.
What can borrowers do?
Mortgage customers with less than six months to run on any kind of mortgage deal can start shopping around for a new home loan now. That’s because lenders allow you to lock in a rate up to half a year in advance.
It’s also worth finding out, in pounds and pence, exactly how much the rate rise could affect your monthly payments either now or in the future. The latest round of mortgage rate rises comes on top of other soaring household costs including food, energy bills and fuel.
The results of the next meeting of the Bank’s Monetary Policy Committee will be announced on 2 March 2023.