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Bank of England

Base Rate to Rise Before Christmas

With concerns around inflation and SWAP rate increases, the Bank of England has indicated an imminent interest rate increase. Jeni Browne explains what this means for mortgage borrowers and what you can do to save money.

As inflation surged after the last lockdown ended, pushing up the price of everyday things like food and clothing, speculation around when the Bank of England (BOE) would increase interest rates has been rife. Due to concerns about how the end of furlough would impact unemployment rates, most experts believed the base rate would not rise until 2022. 

 

However, BOE Governor Andrew Bailey, strongly suggests that interest rates will increase before Christmas 2021 to counter inflation. The expected 0.15% rise will likely be in addition to the two increases predicted by the BOE in 2022. Currently, 0.25% in February 2022 and 0.25% in August 2022. By the end of 2022, we expect that BBR will be at pre-pandemic levels, increasing 0.75% from now.

 

Over the last few weeks, the sharp rise in SWAP rates has motivated some lenders to adjust mortgage interest pricing upwards already. While a few buy to let lenders are still reducing prices, we’ve certainly noticed the “race to the bottom” slow right down over the last couple of weeks. However, following Andrew Bailey’s comments, many high street banks are already busy reviewing and adjusting mortgage rates up.

 

What does this mean for mortgage borrowers?

Borrowers with a fixed-rate mortgage

If your mortgage is on a fixed rate, nothing will change immediately. However, if your fixed term ends in the next six months, you should seriously consider starting your remortgage process now and locking in on a new rate while they’re still low, to begin as soon as your current term ends. This is because the longer you leave it, the higher interest rates will be. Our analysis of BTL lender criteria shows that 22/53 lenders will honour mortgage offers for up to six months. The minimum time for BTL mortgage offers to remain valid is three months, of which 22 lenders abide by. Keep in mind that while buy to let mortgage offers usually take four weeks to come back, once your application is submitted, that rate is secured (as long as an offer is granted). Therefore, even if your term doesn’t end till late May or even possibly early June 2022, you could start the remortgage process today.

 

Furthermore, depending on your Early Repayment Charges (ERCs), you might find it’s worth breaking a few months (or possibly a year) early to take advantage of the low rates currently on offer. Our team can help determine whether this is a financially suitable option for you, so call them today.

 

Borrowers with a variable-rate mortgage

If your mortgage is on a variable rate tracking BBR, it’ll definitely increase when the BOE raises interest rates. If it tracks the lender’s standard variable rate (SVR), it’s likely to increase as we expect lender SVRs to rise too. If you want greater control of your monthly cashflow, and would rather have fixed repayments, now is the time to remortgage onto a fixed-rate mortgage.

 

While we’ve predicted that interest rates would rise towards the end of 2021 going into 2022, news that BBR is almost certainly increasing before Christmas, on top of the SWAP rates movement, means that we’re likely to see (and feel) those rises even sooner.

 

To discuss your property finance options today, be it for your own home or investment property, call our team on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk. We can complete a free review to help you make the most appropriate financial decisions.

NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE