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How rising base rates will impact the mortgage market

By 20th September 2023General Public, Mortgages, Blog
five pound notes, envelopes, a blue clock and a pen sprawled out on a blue wooden surface

The outlook for UK interest rates continues to appear less than ideal with most economists forecasting that the Bank of England will increase the base rate once again, this time by another quarter point. The base rate increase is expected to come into effect at some point this week, taking the current rate from 5.25% up to 5.5%. While an expected quarter-point hike to the base rate is the general consensus amongst economists, some have theorised that we should expect an even higher number which could see rates rise to up to 6%. As a result of further rate increases, the UK public, mortgage brokers and the overall landscape across the mortgage market are set for major change, the extent of which is hard to truly predict as of right now. This will leave mortgage customers in a complicated position, especially if they are a first-time buyer, which is why it’s more important than ever for brokers to be on hand and ready to support with all queries. This article will hopefully be a useful tool in making sure you are prepared for the inevitable swarm of questions which come your way from customers, as they themselves try to get more informed on the matter.

What is the current Bank of England Base Rate?

As of the latest review, the BoE base rate currently sits at 5.25%. This has been the result of numerous surges over the last year or so. From March 2022 onwards, the base rate increased from 0.75% to 2.25%  by the time we hit September of that same year. Following on from there, rates peaked at 3.5% which was the highest they had reached for more than a decade.

The most recent base rate increase in the UK occurred very recently on the 3 August 2023. During the meeting of the Bank of England, the rate was reviewed and subsequently increased by a quarter-point from 5% to the 5.25% value where it currently sits. As you can imagine, the prospect of further escalations for the base rate has the entirety of the financial service sector awaiting confirmation and ready to respond to the impact it will have on interest rates and the spending of the UK public. This includes prospective homeowners who are holding fire on having their mortgages officially arranged until there is more clarity on what interest rates will look like for the foreseeable future.

When is the next Bank of England Base Rate meeting?

Any changes to the base rate are discussed and then implemented following meetings organised by the Bank of England. A panel of BoE members known as the Monetary Policy Committee (MPC) will typically meet every 6 weeks or so where the decision to increase or decrease the base rate will be mediated. The next Bank of England base rate meeting will take place on the 21 September 2023, and as stated previously most economists are predicting the rate to increase once again by a quarter-point. If this were to occur then the base rate would then sit at 5.5%, which is a peak not seen since the meeting which took place on 6 December 2007 following which rates steadily decreased until March 2022 when they once again began to rise.

Banking and mortgage concept. Model home, wooden blocks spelling out home with % symbols and a wooden figure holding stacks of coins.

What does the Bank of England Base Rate increase mean for mortgage rates?

Base rates and interest rates are intrinsically linked, so when one goes up or down so does the other. This dynamic is also present in interest rates and mortgage rates. As the base rate is increased, the UK public is discouraged from borrowing money from lenders as frequently and is instead encouraged to take the time to save more. A rise in the base rate would also influence lenders who charge customers interest rates when they arrange mortgages and loans on their behalf. The more the base rate climbs, the more interest lenders begin to charge customers. The fallout of this dynamic is that the average person looking to borrow money from a lender won’t want to make repayment at a higher interest rate as this means they ultimately pay back a much greater sum than they initially borrowed.

First-time buyers and prospective homeowners looking to arrange a mortgage and then move into a new property will feel the effects of this change most significantly, as the increased mortgage rates can be a real deterrent and ultimately force them to delay their decision to purchase a new home. The biggest casualties however might be those either interested in, or have already arranged a standard-variable rate mortgage (SVR). As a mortgage broker, it’s essential that the advice you provide customers at these sorts of moments is suitable so that a customer isn’t left shackled with a mortgage that they won’t be able to afford further down the line following major changes to the base rate.

When will mortgage rates go down in the UK?

As mortgage rates in the UK are currently on the up, the market for new homeowners and first-time buyers has suffered and with the next BoE base rate meeting set to take place on the 21 September 2023, the idea of further rate increases looks increasingly likely. This of course will cause further issues for mortgage brokers and prospective buyers across the UK. However, the actual landscape isn’t quite as rough as these changes would suggest. In fact, some mortgage lenders have actually made the decision to lower their rates despite the trend for the base rate moving in the other direction. This means that mortgage rates in some cases are actually going down in the UK and may continue to do so, at least for the time being. The primary cause for mortgage rates moving down is not actually to do with the base rate however, and instead to do with lower swap rates, which are a reflection of the general consensus amongst lenders, investors and other stakeholders in the market that the BoE base rate is able to reach its peak once more, rather than continuing to increase. So while we can’t outright predict when mortgage rates will begin to decrease it is reassuring to know that the way the market has been responding isn’t causing further headaches for either customers or brokers.

A calculator and several coloured houses.

How can brokers help customers as mortgage rates increase?

Right now in the UK, there are over 8,500,000 residential mortgages currently being repayed by the public, the majority of which are fixed rate. Most of these mortgages were arranged during periods of lower interest rates which made borrowing more affordable. As a result of an upward trend of mortgage rates, coupled with an increased cost of living, it’s no secret that brokers have suffered in the market as buyers have either looked to borrow less or have simply decided to delay the process of purchasing their home. Things aren’t all bad however, as stated previously in some cases lenders have lowered their rates to encourage borrowing, while there are also a number of services and support schemes brokers can benefit from as part of the PRIMIS mortgage network to make the process of arranging customer mortgages more successful. These include:

  • Fixed rate mortgage lenders – Our list of partners includes a wide range of lenders who are more than happy to arrange a fixed rate mortgage policy for your customers including Halifax, HSBC and Nationwide. A fixed rate mortgage will be unaffected by changes to the base rate or interest rates after it has been arranged, which makes it a useful option for customers who don’t want to deal with ever-changing repayments.
  • Experts team – The Experts team at PRIMIS are on call and available to support you with all sorts of queries and problems you encounter, so that you can enjoy a streamlined arrangement process.
  • Lender updates – The mortgage landscape is fast-paced and ever changing. To help keep up with major updates to our partners rates we have created Lemonade – which consolidates lender updates in a single, easy-to-access platform.

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