Will the Bank Rate Rise in the UK Affect My Mortgage Rate?

If you are a mortgage holder in the United Kingdom, you may be concerned about the potential effects of a Bank Rate rise. The Bank Rate is set by the Bank of England, and

it is the interest rate at which banks can borrow money from the central bank.

The Connection Between Bank Rate and Mortgage Rates

There is a clear connection between Bank Rate and mortgage rates. When the Bank Rate increases, it typically means that mortgage rates will rise as well. This is because the banks will need to pay more interest to borrow money, and they will pass that cost on to their customers.

How Bank Rate Affects Fixed-Rate Mortgages

If you have a fixed-rate mortgage, then the Bank Rate will not affect your interest rate during the fixed period. Your interest rate is set when you take out the mortgage, and it will not change until the end of the fixed term.

However, if you are coming to the end of your fixed term, then you may be affected by any Bank Rate changes. When your fixed term ends, your mortgage will usually switch to a variable rate, which means that it can be affected by the Bank Rate.

How Bank Rate Affects Variable-Rate Mortgages

If you have a variable-rate mortgage, then your interest rate can be affected by changes in the Bank Rate. If the Bank Rate increases, then your interest rate may rise as well. This can make your mortgage payments more expensive.

It is worth noting that not all variable-rate mortgages are the same. Some may have a cap on how high your interest rate can go, which can provide some protection if the Bank Rate rises significantly.

How Bank Rate Affects Discounted-Rate Mortgages

If you have a discounted-rate mortgage, then your interest rate is set at a discount to the lender's standard variable rate. This means that your interest rate is likely to rise if the Bank Rate goes up.

However, the discount may still provide some protection. For example, if the lender's standard variable rate is 4%, and your discounted rate is 1% below that, then your interest rate would currently be 3%. If the Bank Rate were to rise by 0.25%, then your interest rate would also rise by 0.25%, but you would still be paying less than the lender's standard variable rate.

What Can You Do If the Bank Rate Rises?

If you are concerned about the potential effects of a Bank Rate rise on your mortgage, then there are some steps that you can take:

1. Look at your options: If you are coming to the end of your fixed term, then you may want to consider remortgaging to a new fixed rate. This can provide some certainty about your mortgage payments and protect you from any future Bank Rate rises.

2. Speak to your lender: If you are on a variable-rate mortgage, then you may be able to switch to a fixed-rate mortgage with your current lender. Alternatively, you may be able to negotiate a discount on your current rate.

3. Consider overpaying: If your mortgage allows you to make overpayments, then this can help to reduce the amount of interest that you pay over the life of the loan. This can make your mortgage more affordable, even if interest rates do rise.

Conclusion

The Bank Rate is closely linked to mortgage rates in the UK, and any increase can make your mortgage payments more expensive. However, there are steps that you can take to protect yourself, such as remortgaging to a fixed rate or negotiating with your current lender. Keep track of any Bank Rate changes and consider your options to ensure that you are getting the best deal possible. 

If you are affected by the change in interest rate consider contacting us to speak to our mortgage brokers for a no-obligation consultation.