The base rate was recently increased by the Bank of England, from 0.25% to 0.5%, making the first rise in a decade.
This increase will impact on mortgages, some more than others, depending on the type of mortgage. Anyone who is paying the lender’s Standard Variable Rate will probably pay more almost immediately. Most lenders will likely pass on the full increase of 0.25% to borrowers, which will probably come into effect in December. Although an SVR mortgage is often more expensive, you will most likely be free to move to an alternative product without penalties. According to data from UK Finance, the average mortgage of a SVR borrower is £91,000, in comparison with fixed rate borrowers who have an average of £141,000.
Base rate trackers are popular mortgages, which do exactly what they say – follow the base rate plus an agreed amount; for example, pay the base rate plus 2%. When the base rate rises or falls, your mortgage payments will do the same in line with the percentage change. Although the recent change will take an immediate effect, you will probably notice the first increase in the December payment.
Fixed rate mortgages will see no change whatsoever, as they remain on the agreed interest rate for the fixed term: either two, three, five or ten years. There are different advantages and disadvantages with each type of mortgage, which mortgage advisors learn about when they undertake a CeMAP training course, so they can help clients make the right choice.