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Base Rate Increase – what might it mean for you?

Bank of England has increased the base rate to 0.50%


On Thursday 3 February 2022, the Bank of England increased the base rate from 0.25% to 0.50%. This is the second increase in the base rate since December.

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 main driver of rates on mortgages and savings products in the UK. Changes in the base rate are usually likely to impact the cost of mortgages and 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 necessarily the case.

Why is base rate increasing?


Base rate is increasing as a response to rising inflation. The Consumer Price Index (a measure of the costs of goods and services) hit 5.4% in January, well above the Bank of England target of 2%. By increasing the cost of borrowing, the Bank of England hope to reduce rising inflation.


What does it mean for my existing mortgage?


Borrowers currently on fixed rate will not see an immediate increase in the cost of their mortgage.

For borrowers on a variable rate mortgage, including a ‘Standard Variable Rate’ mortgage, rates are likely to rise, though this depends on the type of variable rate mortgage you have.

For those on a tracker mortgage, which directly follow the Bank of England base rate, your rate is likely to increase by 0.25% immediately and payments 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, but will write to you before your payments increase.


What does it mean for mortgage rates?


For the 80% of UK borrowers on a fixed rate, this rate change will not yet impact your monthly payment. For those approaching the end of their existing mortgage deal, looking to purchase a property with new mortgage, or already on a Standard Variable Rate, it is likely that rates will increase. However, this rate rise has been well forecast in advance of the increase on Thursday and many lenders had already factored the increase in costs into new mortgage deals on sale. Some lenders will however withdraw mortgage rates and launch new products with higher rates.


However, despite the two recent increases, the base rate remains below the pre-pandemic level of 0.75% and mortgage rates in general are low compared to historic levels.

What should I do?


In any event, the best course of action is to seek advice. Your Independent Financial Adviser can help you with understanding how the increase in base rate might impact you, explore your options for remortgaging or switching rates, and give you help to access support with financial issues such as savings and pensions.

Want to talk in more detail?


For more information about the base rate changes, and what they could mean for you personally, please get in touch with us here at Royale Thames Wealth.


Silvia Johnson Bsc(Hons), DipPFS, EFA, CertCII (MP) is a Director and Independent Financial Adviser at Royale Thames Wealth and provides independent financial advice to individuals and businesses.

www.royalthameswealth.co.uk

silvia@royalthameswealth.co.uk

07908 109 741 / 020 8720 7249

Royale Thames Wealth Ltd is an Appointed Representative of New Leaf Distribution Ltd which is authorised and regulated by Financial Conduct Authority number 460421.The value of your investment may go up as well as down and the value is not guaranteed. Past performance is not a guarantee of future performance.Wills and Estate Planning are not regulated by the FCA. Your home may be repossessed if you do not keep up repayments on your mortgage.

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