Interest Rates Have Gone Up to 4%. Does It Change Your Next Move?
The Bank of England raised Bank Rate to 4% today, the first rise since 2023. Here's what it means for your mortgage, whether a move before Christmas still makes sense, and what to do if your deal is ending soon.
Just over a week ago we wrote about whether to fix your mortgage now or wait for today. Today has arrived. At noon the Bank of England raised Bank Rate from 3.75% to 4%, the first increase since August 2023. The vote was 8 to 1, and the one who disagreed wanted a bigger rise, to 4.25%. So this wasn't a close call.
Why they did it.
Inflation was 3.5% in the year to September, well above the 2% target, and the Bank now expects it to reach around 5% by the middle of next year, mostly because of energy prices linked to the conflict in the Middle East. The Governor, Andrew Bailey, said this rise shouldn't be seen as the first in a long run of them, but also that further increases look likely unless that conflict is resolved. Several economists now expect another quarter point in December or February.
The one committee member who voted against today's rise wanted a bigger one.
What it means for your mortgage depends on which type you've got.
- On a fixed rate. Nothing changes until your deal ends. Your payment is your payment. The rate you'll be offered when you come to remortgage is a different matter, and that's covered below.
- On a tracker. Your payment goes up, usually from next month. On a £250,000 tracker over 25 years, a quarter point adds about £37 a month. If you took a tracker because it was cheaper than fixing, it's worth checking whether yours lets you switch to a fix without a penalty.
- On your lender's standard variable rate. Expect a letter. Lenders don't have to pass the rise on, but most will over the next few weeks. If you've drifted onto the SVR after a deal ended, you're almost certainly paying more than you need to.
Fixed rates probably won't jump tomorrow.
This is the bit people find odd. Fixed rates are priced on what the markets expect to happen over the next few years, not on today's announcement, and today's announcement was expected for weeks. Lenders had already put their rates up through September and October, which is why the average two-year fix went from 4.94% a year ago to 5.97% now, and the average five-year fix is at 6%. A few lenders were trimming rates in the days before the decision. So if you've been waiting for the dust to settle before fixing, the dust has mostly settled already.
What that looks like in pounds.
A £220,000 repayment mortgage over 25 years costs about £1,278 a month at last year's average two-year rate and about £1,413 at today's. That's roughly £135 a month more, or about £1,600 a year. If a further quarter point is passed on, that becomes around £1,447.
The rise everyone was waiting for was already in the price of most fixed deals before noon today.
If your deal ends in the next six months.
Most lenders let you lock in a new rate up to six months before your current one runs out, and you can usually still swap if something cheaper comes along before it starts. Given that the next two decisions are in December and February, and both could go up, locking something in now and keeping the option to switch is the sensible position for most people. A broker can do this for you in an afternoon.
If you're buying now.
If you've got a full mortgage offer, your rate is secured, usually for around six months. If you've only got an agreement in principle, you haven't got a rate yet, so talk to your broker this week rather than next month. And remember the deposit bands: in October, two-year rates ran from just over 5% for buyers borrowing 60% of the price up to just over 6% at 95%. If you're close to the next band, a little more deposit can save more than you'd think.
Does it change whether you should move?
Mostly, no. A quarter point on its own doesn't make a move that stacked up last week stop stacking up this week. What it does change is the margin for error, so it's worth being clear about three things before you commit: what you can borrow at today's rates rather than last year's, how long it will realistically take, and whether the price you're paying or asking reflects the market as it is now.
On timing, we looked at how long homes round here take to find a buyer earlier this week. The typical home takes 45 days to go Sold STC, and then the legal work takes a few months on top. So if you're only starting now, a move before Christmas is unlikely unless you're already well down the line. That's not a reason to wait. The weeks after Christmas are usually the busiest of the year for people starting to look, and sellers who have their valuation, photos and paperwork sorted in December are the ones who go live first in January.
If you're selling.
Buyers' budgets are a little tighter than they were, so the asking price has to be right first time. A home that starts too high misses its biggest audience in the first fortnight, and we've got the figures to show that happens more in some price brackets than others. Ask whoever values your home to show you what similar homes have actually sold for this autumn, not what they were listed at.
If you're a landlord.
If you're on a tracker or variable rate, your costs have just gone up, and with the extra tax on rental income from next April that we covered after the Budget, it's worth sitting down with the full numbers. Higher costs don't automatically mean higher rents. Rents depend on what tenants round here can pay, and that hasn't changed today.
A quarter point doesn't make a move that stacked up last week stop stacking up this week. It just narrows the margin for error.
What happens next.
The October inflation figures come out on 18 November, the Bank meets again on 17 December, and then on 4 February. If inflation keeps climbing the way the Bank expects, another rise before spring is more likely than not. None of that is certain, and nobody knows where rates will be in two years. What you can control is whether your own numbers work at today's rates, and whether you've got a rate secured rather than hoped for.
Want to talk it through?
If you're thinking about moving and want to know what your home is worth in today's market, or you need a broker who can lock a rate in quickly, call Sam on 01925 767000 or email sam@courtyardhomes.co.uk. We can put you in touch with the UK Mortgage Centre with no obligation.
