The Bank of England has raised the base rate to 5.25%, a 15 year high. But what does this mean and why is this the 14th base rate rise in a row?

Why do rates keep rising?

The UK is currently trying to tackle a high inflation rate. Inflation is the rate at which the average cost of household goods are increasing. The Bank of England has a target of 2% for inflation but this currently sits at 7.3% (June). Much higher than where inflation needs to be.

The Bank of England’s primary tool to reduce inflation is to increase interest rates. Raising interest rates deliberately squeezes household budgets with the goal of reducing their spending to help bring the inflation rate down. This does have painful side effects particularly on families on variable or tracker rate mortgages.

What does this mean for my mortgage?

Interest rate rises have the biggest immediate impact on tracker and variable rate mortgages. Most tracker mortgages track the Bank of England Base rate so any rise in the base rate will reflect quickly on tracker rate mortgages. Variable rates are usually linked to a Lender’s own rate that they set, however, we often see base rate rises trickle down quickly to variable rate mortgages.

If your mortgage is currently on a fixed rate then you will not be impacted immediately. Your rate and monthly payment will remain the same until you reach the end of your fixed rate. At this stage you would then either move to a variable rate or look to move on to a new fixed rate.

What does the future hold?

June’s inflation figure of 7.3% was its lowest level for more than a year. This suggests that the Bank of England is seeing success with their policy of raising interest rates. Whereas in the Spring we were seeing predictions that the base rate could reach at least 6%, if not higher, the expectation is that it will now top out at 5.5% if inflation continues to be curbed.

We have also seen mortgage lenders reducing their rates over the last couple of weeks and SWAP rates also stabilise at less than 5% for 5 year money. This is the rate at which banks are trading between themselves.

With this in mind, the future does look brighter than it did 3 months ago. If inflation figures continue to reduce, then this should prevent the Bank of England continually raising rates.

How can we help?

Here at Carbon we understand the impact that this is having on those with mortgages and we are helping clients on a daily basis get themselves in the best possible position to tackle rising costs.

We highly recommend that you reach out so that our mortgage experts can discuss your situation and provide you with the best possible advice. We can look to secure you a new rate now if you are able to and can explain to you the options you have to get yourself the best possible deal available.

To get started, give us a call on 01932 505 340 or send us an email: