UK Mortgage Market Split on Base Rate Hike

By: MoneyFacts

A base rate rise can cause an element of uncertainty in the mortgage market, as it can often be difficult to predict how providers are likely to react to the news. Now, a month on from the Bank of England’s decision to increase the base rate to 0.75%, Moneyfacts.co.uk assesses the impact this rise has had on the mortgage market.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said:

“A base rate rise can be an anxious time for borrowers, particularly if they are on a variable rate deal. Many would have assumed that a 0.25% increase to base rate would mean they would have automatically seen the full 0.25% passed on straightaway. However, data from Moneyfacts.co.uk shows that while all variable rates have risen one month on, none of them have increased by the full 0.25% as many would have expected.

“After November’s rate rise last year, the full 0.25% was seen in the average two-year tracker just 16 days later. However, this time providers have been a lot slower to react, which may become the norm for future borrowers.

“Now, 60% of providers have increased their standard variable rate (SVR), with only two providers (Bath Building Society and Principality Building Society) passing on less than the 0.25% increase. Yet more rises could be to come, as so far only Yorkshire Building Society has announced that it will not be increasing its SVR this time around.

“With this knowledge, borrowers sitting on an SVR may feel they are as yet getting a break from the full effects of the base rate rise. However, this is not the case, particularly as the highest SVR currently stands at 6.33%.

“The two-year fixed rate mortgage market is a completely different story, with the average rate remaining the same over the course of the month. Many providers had already priced the rate rise into their fixed rate mortgages in the lead up to the announcement, as they are aware that a rate rise causes many borrowers to reassess their deal. Therefore, lenders have held off from increasing rates further in a bid to attract these borrowers who are now considering remortgaging away from their SVR.

“Any borrower who is sitting on their SVR should do just that, as they could save £250.35* a month or £3,004.20* a year by simply switching from the average SVR (4.84%) to the average two-year fixed rate (2.53%). The ball is now rolling for base rate rises, with at least a quarter-point rise expected in the foreseeable future. Borrowers now shouldn’t rest on their laurels and should opt for a fixed deal to protect themselves against any future rate rises.”

*Based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis.

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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