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The Bank of England base rate has risen to 4%, so what does this mean for mortgage rates? Your guess might be wrong!

Yesterday the Bank of England increased the base rate from 3.5 to 4% - the 10th consecutive rise since December 2021. This is the highest it's been since 2008, a year that saw a base rate high of 5.75%.

While this undeniably could have an effect on monthly outgoings and decrease consumer buying power overall, it's effect on mortgages requires some explaining.

It's a very common misconception that mortgage rates are directly linked to the bank base rate as a rule. Many people will see the headlines and assume that mortgage rates will be on the rise as well. In actuality, this isn't the case for the most popular mortgage products out there.

Since last year's mini budget, some mortgage rates have been diverging from the base rate trend. While the latter continues to rise, fixed rate mortgages - the most popular type of mortgage according to mortgage advisor Elliot Nathan - have actually been slowly getting cheaper. We explain why in our blog here.

As Tim Bannister of Rightmove points out, "For those considering taking out a fixed mortgage deal soon, the good news is that this increase was widely expected by the financial markets and will have likely been factored into their plans. This means that we may see fixed-rate mortgage deals continue to edge downwards in the first half of this year, as some stability and calm continues to return to the markets.”

Unlike fixed rate mortgages, tracker rate mortgages do exactly what they say. They track a financial indicator, the most common of which is the Bank base rate. So while they tend to be cheaper than fixed rate mortgages, they are susceptible to Bank base rate changes, for better or worse.

Following yesterday's increase, people with these types of mortgages are likely to see an increase in their monthly mortgage payments. 

But Tim Bannister says “It’s likely that many of those on a tracker mortgage will still be on a lower rate than most current fixed-deals even with this increase, so we’re unlikely to see any rush to fix from this group just yet, although with the gap between tracker and fixed rates narrowing it may prompt more people to see what’s on offer in the coming weeks."

For those on variable rate mortgages, Mike Harris of SPF Private Clients says “With a variable-rate deal, the link between the lender’s variable rate and base-rate moves are less transparent. The lender may decide to pass on none, some, all or even more than the base-rate rise."

You may be asking - how long will this go on? Are we at risk of hitting interest rates of up to 12-13% like people faced in the 90s? The good news is, experts across our industry predict the current rate to be very near its upper limit.

As for house prices? Serious buyers and sellers are still in the market, but it has never been more important to get your pricing and marketing absolutely on point. The agent you choose could make or break your sale in the current market, so make sure to vet your options thoroughly before making your decision!

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