Bank of England mortgage rates

Mortgage lenders remain competitive despite base rate rise to 4%

The Bank of England’s widely anticipated base rate rise might create ripples in the mortgage market, but lenders have already been bringing their rates down and opening up more products.

In what was the tenth consecutive base rate rise, the Monetary Policy Committee (MPC) made the decision this week to add on a further 0.5% percentage points, bringing the new rate to 4% – a 14-year high.

The Bank of England believes the high levels of inflation we have been seeing have peaked, and that we are now in for a shorter, sharper recession than had previously been expected. It now predicts the rate of inflation to fall sharply from 10.5% in December 2022 to 3.5% this December, before falling again to 1% in 2024.

On an individual basis, the base rate can have a big effect for both mortgage holders – or those planning on taking out a mortgage – and savers, as banks and lenders tend to bring out products that mirror the Bank of England’s rate.

Yet a number of mortgage market experts remain optimistic on the outlook for borrowers, albeit while acknowledging that interest rates on all products now will be much higher than they were a few months ago. Notably, mortgage deals have been getting cheaper since November last year, despite base rate hikes.

Steer clear of standard variable rates

All mortgage providers offer a standard variable rate (SVR), which is a no-contract, rolling rate that can go up or down at any time. Generally, the SVR is higher than fixed-term products, although it can offer a flexible option for those wanting to move onto it temporarily, such as before sale of a property.

However, the advice across the board seems to be that, at the moment, borrowers should steer clear of SVRs wherever possible, and lock into a fixed-rate mortgage instead. The length of term you go for will be down to your personal circumstances.

The latest figures from Moneyfacts show that the average SVR as of 1st February is currently 6.84%, up from 6.64% last month. This compares to 5.44% for a two-year fixed rate mortgage (down from 5.79% last month), 5.20% for a five-year fixed rate (down from 5.63% last month).

Rachel Springall, Finance Expert at, said: “Borrowers coming off their fixed rate deal will be disappointed to see this latest rise to the Bank of England base rate, particularly if they plan to sit on their standard variable revert rate over the shorter-term in hopes that fixed rates will come down before they refinance.

“The mortgage market is slowly recovering from the volatility of interest rate uncertainty towards the tail end of 2022, but the markets are expecting both rises and falls to base rate this year.

“Lenders tend to pass base rate rises onto SVRs within a few months and a rise of 0.50% on the current average SVR of 6.84% would add approximately £1,536* onto total repayments over two years.”

Landlords see return of mortgage products

The buy-to-let mortgage space has seen the same pattern as mainstream residential, with swathes of options being swiped from the shelf in the wake of last year’s mini-budget, before new products began to be reintroduced once confidence returned.

Rates in this arena have also increased, having the same effect on affordability as in the mainstream market. However, buy-to-let rents and tenant demand both remain extremely strong in many parts of the UK, offsetting some of the concerns surrounding rising mortgage rates.

According to Angus Stewart, chief executive at online broker Property Master, lenders are becoming more competitive again, meaning there is still cause for optimism in the year ahead.

“Longer term interest rates are reducing from their peak lessening the significant margin we were seeing between fixed and variable rates,” he said. “Lenders are introducing new fixed rate products which are looking more competitive when compared to discount and tracker rates.”

He mirrors the notion from Moneyfacts and others that, where possible, landlords should opt for a fixed rate mortgage to keep their costs down.

“With many landlords coming to the end of fixed term products this year while there is still a significant increase in rate from their old fixed term it is still in their interests to look for a new mortgage product (either fixed or discounted) rather than go onto the lender’s SVR. ”

He added: “Since the mini budget last year when we were seeing buy-to-let mortgage products removed dfrom the market at an unparalleled level most lenders have now returned to the market and we are seeing increasing competition.

“The key challenge for many landlords is meeting the affordability requirements given the higher product rates resulting in tougher stress tests.”

Despite the latest base rate hike and ongoing cost of living difficulties being faced by many, there is greater economic stability now than there was a few months ago, which is positively impacting the mortgage market.

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