mortgage costs

Interest rate rise could spark mass mortgage renewal surge

The Bank of England’s latest interest rate rise is expected to have a knock-on effect on mortgage rates, and borrowers are being urged to move quickly.

Yesterday’s Bank of England interest rate rise saw the base rate lifted by 0.5 percentage points to 1.75%, in what was the biggest single hike in 27 years. It is the sixth successive increase in rates, and comes alongside warnings of a recession later this year.

The action was taken in part as a result of soaring prices, which the Bank blamed on Russia’s invasion of Ukraine. Inflation is expected to hit 13.3% later this year, but the Bank of England’s aim is to bring it back down to 2%.

What the majority of property owners are most keen on finding out is how this could affect their mortgage borrowing costs, with one ball park figure of an additional £50 per month in payments being but out as an average estimate.

The interest rate rise is likely to result in many borrowers reassessing their mortgages right now, and trying to secure the best fixed rates available to protect against future increases by lenders.

Another interest rate rise to come?

Many in the industry suspect that this will not be the last bumping up of the base rate we will see in the near future. Therefore, both homeowners and property investors are being urged to take action now.

Rachel Springall, finance expert 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.

“Consumers will find that the average five-year fixed rate has breached 4%, and the rate gap between this and the average 10-year fixed rate has closed in since December 2021.

“The cost of living crisis, interest rate rises and house price growth could price out would-be buyers if they have little disposable income and subsequently eat into their savings.

“On the other hand, remortgage customers may find they have more equity in their home but will need to get some independent advice on whether they can comfortably afford to switch their deal.”

Certainty for the future

A lot of mortgage-holders will already be on fixed rate deals. For those whose terms might be coming to an end soon, it could prove beneficial to find out about any fees that would be charged from ending the deal early and locking into a new one. It could still save money in the long run.

Those who are on their lender’s standard variable rate will be much more vulnerable to the interest rate rise, warns Springall. “Borrowers sitting on a standard variable revert rate (SVR) who want to shield themselves from a rise in mortgage repayments could stand to save a decent sum by switching to a fixed deal.

“The difference between the average two-year fixed mortgage rate and SVR stands at 1.22%, and the cost savings to switch from 5.17% to 3.95% is a difference of approximately £3,333 over two years*. A rise of 0.50% on the current SVR of 5.17% would add approximately £1,400* onto total repayments over two years.”

*This is based on the average standard variable rate (SVR) which is currently 5.17%. Calculations are based on a £200,000 mortgage over a 25-year term on a repayment basis.

Time to overpay?

Brian Murphy, head of lending at Mortgage Advice Bureau, comments: “The Bank of England is underway on its promise to ‘act forcefully’ in efforts to try and tame the worst inflation surge since the 1980s.

“But while the MPC aims to rein in inflation, higher rates, along with soaring prices, will put further substantial strain on mortgage borrowers, particularly those on tracker or variable rates.

“Cheaper mortgage products are also dwindling, meaning home buyers are being left with more expensive options and either racing to lock into a rate or curtailing demand altogether as it challenges buyer affordability.

“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 2 million people are on variable rate mortgages and will subsequently see an immediate impact on their monthly mortgage repayments. While those on fixed rate deals will be sheltered from interest rate rises for the duration of their mortgage term, around half are expected to expire in the next two years.

“Some may therefore consider lengthening their mortgage terms or even overpay on their mortgage to help them with payments over the long term. Speaking to a whole of market mortgage broker, however, can help figure out the best options based on your personal circumstances.”

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