Bank of England increase base rate

On Thursday 22 June 2023, the Bank of England increased the base rate from 4.5% to 5%.

What is the base rate and why does this matter?

The base rate, set by the Bank of England’s Monetary Policy Committee, is the rate they charge other banks and lenders when they borrow money. It is the main driver of rates on mortgages and savings products in the UK and any changes are likely to impact the cost of mortgages and the return on savings. Generally, a higher base rate means banks and building societies are likely to increase the cost of mortgages, whilst savers can expect a slightly higher rate of interest on their savings. However, this isn’t always the case.

What does it mean for my existing mortgage?

Fixed-rate mortgages currently account for four out of five mortgages in the UK. If you have this type of mortgage, the change will not affect your payments immediately, but could do when the fixed period ends.

For those on a tracker mortgage, which directly follows the Bank of England base rate, your rate is likely to increase by 0.50% immediately and payments will go up from next month.

For those on a discounted rate, or standard variable rate mortgage, your lender may decide to pass all, some, or none of the increase in rates on to you. They will write to you in advance of any increase in payments.

What does it mean for mortgage rates?

For UK borrowers on a fixed rate, this change won’t immediately impact monthly payments. For those approaching the end of their existing mortgage deal, looking to purchase a property with a new mortgage, or already on a standard variable rate, it is likely that rates will increase. However, this rate rise has been well forecasted, and many lenders already factored the increase into new mortgage deals. Some lenders however will withdraw mortgage rates and launch new products with higher rates.

Despite the recent increases, the base rate still remains low compared to historic levels.

What does it mean for my mortgage offer?

Clients with existing mortgage offers will not see rates increase for as long as the mortgage offer remains valid.

What should I do?

Getting in touch with a mortgage adviser can help you understand how the increase in base rate might impact you, explore your options for remortgaging or switching rates, and help you access support if you think you may encounter difficulties in paying your mortgage.

Want to find out more?

For more information about the base rate changes, and what they could mean for you, get in touch with an adviser today.