Today, on June 22nd 2023, the Bank of England increased the base rate to 5%, their 13th increase in a row and the highest the base rate has been in 15 years. But what does this mean for you and your mortgage? Our mortgage advisors are on hand to help answer any questions you may have.
- What Is The Base Interest Rate?
- What Does The Rise In Interest Rate Mean For Mortgages?
- What’s The Bank Of England’s Connection To Interest Rates?
- Why Is The UK Interest Rate Rising?
- How The Levels Financial’s Mortgage Advisors Can Help
What Is The Base Interest Rate?
Interest rate is the amount of interest due per period on the amount of money, borrowed, lent or deposited. If you have a savings account, for example, your savings will increase at the rate that your bank or building society pays you. (In today’s market a good savings interest rate is 1% or higher).
Interest rate is also added when borrowing money. It is the amount of money a lender can charge a borrower on top of the agreed borrowed amount. Mortgages are the biggest loan an individual is most likely to ever get, and the interest rate is the additional cost that gets added onto the total for the borrower to repay.
Before the 22nd of June 2023, the UK’s interest rate was set at 4.5%, which was the highest the rate had been since the 2008 economic crisis. Now, the rate has been increased by 0.5%, resulting in a 5% interest rate across the board for all loans, potentially affecting millions of households.
What Does The Rise In Interest Rate Mean For Mortgages?
For mortgage holders, depending on what type of mortgage you’ve got, this could affect your monthly payments going forward. If you have a fixed-term mortgage the increase to a 5% base rate shouldn’t affect your mortgage payments, however, it could affect the price you pay on other loan repayments.
Depending on the type of mortgage you have, the new rate could increase your monthly payments:
| Mortgage Type | Affected By Increased Interest Rates? | Why? |
|---|---|---|
| Fixed Rate Mortgage | No | You will continue paying your mortgage at the fixed rate you agreed to when applying. |
| Standard Variable Rate Mortgage | Maybe | Lenders will likely increase your monthly payment in reaction to the change in interest rates. This may differ depending on your lender. |
| Discounted Rate Mortgage | Maybe | Depending on your lender, your discounted rate mortgage may fluctuate with the interest rates. |
| Tracker Mortgage | Yes | Tracker mortgages will rise and fall with the change in interest rates |
| Capped Rate Mortgage | Maybe | Similar to your standard variable rate, your payments may increase, but they will not go above your agreed ‘capped’ rate. |
| Offset Mortgage | Maybe | Your monthly rate may increase and your offset savings account won’t earn any interest either. |
For more information about the different mortgage rates available, see our blog post: ‘Four things to know when remortgaging in Yeovil.’
What’s The Bank Of England’s Connection To Interest Rates?
The Bank of England is publicly owned and is the central bank for the whole of the UK. The Bank of England is also in charge of influencing the interest and base rates (read more about it in our latest blog post: ‘March’s base rate increase and what it means for you’).
When the Bank of England increases or decreases interest rates other lenders, banks and building societies follow suit.
Why Is The UK Interest Rate Rising?
The Bank of England has raised interest rates in a bid to help reduce the rate of inflation, the rate at which the prices of goods and services increase. The annual inflation rate has been steadily increasing in the last 12 months and has been stuck at 8.7% since May.
To help reduce the inflation rate and prevent it from rising any further, The Bank of England has raised interest rates by 0.5% with the idea that by making it more expensive to borrow money, people will have less to spend and will bring down the demand for items – thus helping to reduce the price rises.
How The Levels Financial’s Mortgage Advisors Can Help
Whether you’re a first-time buyer or looking to purchase a shared ownership property, interest rates and what they mean can be daunting, which is why we are on hand six days a week to help. Still, got questions? Our team of friendly and expert mortgage advisors are on hand to help, contact us today at admin@thelevelsfinaicial.co.uk or call us on 01458 772040 and we will be happy to help.
Important information:
- You may have to pay an early repayment charge to your existing lender if you remortgage.
- If you do not keep up with your mortgage repayments your home may be repossessed.
- A fee may be included for mortgage advice. The actual remortgage amount you pay will differ depending on your circumstances. Fees can be up to 1%, but typically a fee is 0.3% of the borrowed amount.
