3 November 2022
If you are covering the Bank of England MPC’s decision to raise the base rate to 3% and its impact on mortgages, please see the following comment from Karen Noye, mortgage expert at Quilter:
"Today’s rise of the Bank of England’s base rate will come as no surprise to the mortgage market. As such, there won’t be too much change in the cost of the deals available as the predicted extent of future interest rises are largely already priced in. However, that does not mean that people will not be suffering with increased mortgage payments.
"Borrowers who are on their lender’s standard variable (SVR) rate may see a significant jump. A good rule of thumb is that a lender’s SVR is around 2-5% higher than the Bank of England’s base rate. Therefore, now the Bank of England has raised the base rate to 3% in the best case scenario someone will be paying around 5% interest on their mortgage and potentially up to 8%, if on an SVR.
"Let’s assume that yesterday when the base rate was 2.25% someone on their lender’s SVR was paying 4.25% interest on a £200,000 mortgage over 25 years then they would have been paying about £1,083 per month. Now the base rate has climbed to 3%, the SVR will also climb to a conservative estimate of 5%. That same mortgage at that interest rate would cost £1,169. A difference of around £86 a month.
"This is just one illustration of the significant pain borrowers up and down the country will be feeling. Anyone coming to the end of longer fix rate deal will be shocked by how much their monthly payments will now be in this new interest rate environment. These extra costs on top of food and energy prices rises may add up to a winter of discontent for many. This could cause a wave of people to opt to try and sell their home to opt for something smaller. If lots try and do this at the same time, the laws of supply and demand dictate that house prices will drop as stock mounts on the market but demand dries up.
"It is therefore always wise to speak to your lender or a mortgage adviser if you are coming to the end of a deal so you avoid going onto the standard variable rate. This could save you a significant amount of money particularly during this era of ever increasing interest rates."
