What Does the Interest Rate Rise Mean for Mortgage Holders?

Call our best advice team free on mobileSorry, we are currently closed.
Please email us or Request a callback
Whether you want to ring us, request a callback or chat online with our experts rest assured that no matter how you get in touch, you'll always get the best advice

On Thursday 2nd November, the Bank of England announced an interest rate rise for the first time in a decade.

Early in September, the money markets weren’t expecting the first Bank of England interest rate rise to occur until late 2018, at the earliest. Just over a week later, and the markets’ view was that there was a near 50% probability of a 0.25% base rate increase by November.

This prediction turned out to be true, and on Thursday 2nd November there was an increase in interest rates from 0.25% to 0.5%.

What does the rise in UK interest rates mean for the mortgage market?

An increase in interest rates for any borrower inevitably means they may see an increase in repayments. But for mortgage borrowers, will the effects be immediate?

Variable or tracker rate mortgages

According to the Bank of England, 43% of homeowners are on variable or tracker rates. These are the people who will be most affected by the rate rise.

Those on Bank of England base rate tracker mortgage will immediately be affected, with their monthly payments going up. But, those on standard variable rates (SVR) will not necessarily be affected immediately. This is because some lender's variable rates are dictated by the bank and therefore are likely to be reviewed now. If lenders decide to change their SVR, they will have to write to each customer and let them know.

According to the Nationwide Building Society, a 0.25% rise in base rates would have a modest effect on anyone on a standard variable rate. On the average mortgage of £125,000 an increase of 0.25% would increase monthly payments by £15 to £665. That would amount to an extra £185 per year.*

Fixed rate mortgages

According to the Bank of England, 57% of mortgage borrowers are on fixed-rate deals.
Fixing payments mitigates the risk of rate increases, therefore these borrowers are protected whilst they remain on their fix rate. If they are approaching the end of their term, they should talk to an advisor soon.


*BBC News article, 29th September 2017. http://www.bbc.co.uk/news/business-33568469