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BoE rate change will cause near-immediate cost rise for homebuyers and variable rate mortgage holders – reaction

  • 04/08/2022
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BoE rate change will cause near-immediate cost rise for homebuyers and variable rate mortgage holders – reaction
People applying for a mortgage and those with variable rate products will feel the impact of the recent base rate rise immediately.

Today, the Bank of England’s Monetary Policy Committee decided to increase the bank rate by 0.5 per cent, putting it at 1.75 per cent. This is the highest the base rate has been since December 2008 during the financial crisis, and the largest increase for 27 years. 

The sixth consecutive hike to the base rate is part of the central bank’s effort to temper rising inflation, which is set to reach 13 per cent by the end of the year. The Bank of England also warned the UK could fall into recession at the same time. 

People securing a new mortgage rate will notice the difference in costs, with Rightmove suggesting first-time buyers will see mortgage payments make up 40 per cent of their gross salary, a level not seen since 2012. 

The property portal predicts the average mortgage payment for new first-time buyers will rise to more than £1,000 a month. 

Before the base rate increase, the average monthly payment stood at £976 per month, compared with £813 per month in January which is a rise of a fifth since the start of the year. The 0.5 per cent change could push this up to £1,030 if pricing is passed on by lenders. 

Tim Bannister, director of property data at Rightmove, said: “First-time buyers trying to get onto the ladder are currently facing average monthly mortgage payments that are 20 per cent higher than the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to raise a large enough deposit.”  

Those on fixed rate deals which are set to end soon have been encouraged to shop around. 

Robin Fieth, chief executive at the Building Societies Association (BSA), said: “When those fixed rates end, most will choose either to re-fix with their current provider or search the market. Whilst rates remain comparatively low, we have seen fixed rates rise sharply since December 2021 and borrowers will need to consider the impact of increasing rates alongside all the other increasing demands on their monthly earnings.” 

Based on a £130,000 25-year term mortgage, the BSA said those coming to the end of a two-year fix would see similar deals costing £100 more a month. For those on five-year fixes, remortgages may result in a £60 increase to monthly payments. 

Feith reassured: “Lenders are sensitive to the rising number of people facing a squeezed household budget. Anyone who is worried about their ability to pay their mortgage should get in touch with their lender early and they will do everything possible to help.” 

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Not all mortgages are rising as quickly as the Bank of England base rate, because the big banks are still sitting on so much lockdown savings that they can afford to fund cheaper deals, so it’s well worth shopping around.” 

Brian Murphy, head of lending at Mortgage Advice Bureau, said cheaper mortgage products were “dwindling” leaving home buyers with more expensive options or racing to lock in rates. 

He added: “New and existing borrowers should seriously consider locking a fixed term deal to protect them from any further rate rises. With economists predicting inflation to soar even higher, interest rates may well follow suit for a while longer.  

“Approximately two million people are on variable rate mortgages and will subsequently see an immediate impact on their monthly mortgage repayments.” 

Karen Noye, mortgage spokesperson at Quilter, said the rising base rate had meant a relatively small rise in mortgage bills so far, but the latest hike would hit people’s already stretched budgets. 

She added: “Those on fixed rate deals might still be feeling protected by their deal. However, unless you have recently opted for a long fixed rate deal then it is likely you’re going to need to face the music sooner rather than later when your current deal comes to an end. In the next year, there will be thousands of borrowers forced to walk out into a completely different interest rate environment and secure a new deal.  

“This means there will be a slew of new borrowers suddenly having to partake in the misery that those struggling with tracker or standard rate mortgages are already bearing.” 


Variable rate mortgage borrowers to feel effects straightaway 

Those on variable rates are expected to feel the impact of the base rate rise immediately, as lenders pass it through to mortgage products. 

Data from Moneyfacts showed that the average standard variable rate (SVR) now stood at 5.17 per cent, up from 5.06 per cent in July. 

Since July, average two-year fixed rates have ticked up to 3.95 per cent from 3.74 per cent, five-year fixes have gone up to 4.08 per cent from 3.89 per cent and 10-year fixes have gone from 4.01 per cent to 4.19 per cent. 

Rachel Springall, finance spokesperson at, said: “Borrowers who have not locked into a fixed rate would be wise to move quickly to secure a new deal as interest rates continue to climb. Fixing for longer may be in the mindset for some, as there is anticipation for further base rate rises to come.” 

Simon Webb, managing director of capital markets and finance at LiveMore, said while the base rate was low by historical standards, “it is going to hit everybody on a variable rate hard, and is likely to create more mortgage prisoners as, despite the cancellation of stress testing, many people will be forced to pay a lender’s SVR because they can no longer meet the affordability tests to move to a different lender”. 

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