BoE rise to 4.25%: Mortgage expert explains what this means for first-time buyers and those due to remortgage

the Bank of England’s (BoE) Monetary Policy Committee (MPC) again took the decision to increase the UK base rate. This increase brings the new base rate to 4.25%, the 11th consecutive rise.

Kellie Steed, Uswitch.com mortgage expert comments:

“On 23 March 2023 the Bank of England’s (BoE) Monetary Policy Committee (MPC) chose to raise the UK base rate to 4.25%. Whilst a less steep rise than the previous 0.5% in February, this 11th consecutive increase in the base rate may come as a surprise to some.

“As to whether more rises are expected throughout the remainder of the year, economists are largely split in their decisions, due to uncertainty over current volatility in the global banking system. The MPC will not now make their next base rate decision until 11 May”.

What does the rising interest rate mean for my mortgage?

“If the end of your fixed-rate deal is approaching, it’s a tough call whether to lock in a new deal now, as the impact of current global economic instability’s effects on the BoE MPC’s next decision is difficult to gauge. That said, fixed-rates are in about the best position since they began to rise significantly back in October 2022, so if you’re within six months of the end of your current deal, there’s absolutely no harm in tying in the most attractive rate currently available. You can always switch deals again should a better rate become available before your end date.

“Those currently on a tracker can expect a 0.25% rise in their rate and should definitely keep a close eye on rates in the weeks approaching the next base rate decision, as it’s currently difficult to predict the MPC’s next move in May.

“Those with ongoing fixed-rate deals won’t need to concern themselves with interest rate fluctuations for the time being, given that changes won’t affect their repayments until the deal ends. If you’ve recently fallen onto an SVR, however, there’s absolutely a case to look at fixing for at least the short term, or potentially a one to two year tracker if you’re slightly less risk averse. At the current time, both offer a fairly significant saving on the average SVR rate.”

What does this mean for first time buyers and those who have just bought their first home?

“It’s obvious that this is a challenging time for first-time buyers despite a gradual decline in fixed mortgage rates since the initial spike following September’s mini-budget. With this most recent increase in the base interest rate, the cost of borrowing remains much higher than previous years. Buyers who are not yet on the property ladder will need sizable deposits in order to access the most favourable interest rates.

“There are still a number of home ownership schemes that could assist first-time buyers who are having trouble saving a deposit to start their home ownership journey sooner. The Help to Buy programme ended for applicants in England back in October 2022, but the Shared Ownership Scheme, First Homes Scheme, Right to Buy/Right to Acquire for tenants of housing associations and councils, respectively, as well as the Deposit Unlock Scheme, which has been extended through the end of 2023, may be helpful.

“It’s possible that first-time homebuyers will find it more affordable to purchase a home toward the end of 2023 because both house prices and fixed mortgage rates are anticipated to continue falling throughout the year. Whether you will benefit from buying now or later will largely depend on your unique circumstances, and it’s a good idea to speak to a mortgage broker before making a decision.”

How will this impact families?

“Families whose incomes are already stretched thin by the cost of living crisis may have hoped that the base rate would remain at 4% today as this may have led to lenders lowering fixed mortgage rates further.

“The 0.25 percentage point increase might, therefore, come as disappointing news. However, those who are concerned about future rate rises and due to remortgage soon should consider locking in a new rate now. If rates fall before their new mortgage begins, they can always switch again.”

https://www.uswitch.com/mortgages/