Mortgage rates are on the up following the Bank of England’s decision to up its base rate to 0.5%. So, with two lenders already revealing plans to pass on the increase to customers, will others follow suit? Let’s take a look.
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How does the base rate impact mortgage rates?
On Thursday 3 February, the Bank of England’s Monetary Policy Committee (MPC) voted to increase its base rate from 0.25% to 0.5%. This means that the rate is now just 0.25% lower than its pre-pandemic level of 0.75%.
The base rate massively impacts mortgage rates as it determines the interest rate at which banks can lend to each other. Put simply, a higher base rate makes borrowing more expensive for lenders. As a result, mortgage rates traditionally creep upwards when the base rate is hiked.
Despite the base rate rise only taking place on Thursday, two big-name lenders have already signalled their intention to pass on the increase to customers.
Which lenders are hiking mortgage rates?
Both Santander and Nationwide have revealed that they will pass on the base rate hike to variable rate mortgage customers. Here are the details.
Santander mortgage hike
If you have a standard variable rate (SVR) mortgage with Santander, your rate will increase on 1 March. Currently, Santander’s SVR is 4.49%, so from 1 March it will be 4.74%.
If you have a Santander tracker mortgage, your rate will also increase by 0.25%.
Nationwide mortgage hike
If you’re a Nationwide mortgage holder on its ‘base’ or ‘standard’ mortgages, your rate will increase by 0.25% from March.
This means ‘base’ mortgage customers will see their rate go from 2.25% to 2.5%. Meanwhile, ‘standard’ customers will see their rate jump from 3.74% to 3.99%.
Like Santander, Nationwide will also pass on the full 0.25% increase to tracker mortgage customers.
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Will other lenders raise mortgage rates?
It’s a near certainty that other mortgage lenders will follow Santander and Nationwide’s lead by hiking mortgage rates. If this happens, it’s likely to impact roughly two million variable rate mortgage holders across the UK.
While lenders don’t have to pass on any base rate rises to variable rate customers, they often do.
If you’re on a fixed-rate mortgage, then there’s better news for you. That’s because you won’t see your mortgage rate increase just yet. However, when your fixed term ends, you may find it trickier to find a competitive mortgage deal. That’s because mortgage lenders may now start to cut back on the number of ultra-cheap mortgages available.
If you’re nearing the end of your fixed term, why not take a look at the current top-rated mortgage deals to avoid missing out?
What will happen if the base rate rises again?
If the Bank of England decides to raise its base rate again, lenders will almost certainly further increase rates for those on variable mortgages. It’s also likely that the availability of cheap mortgages will be further reduced.
Many analysts expect the Bank of England to raise rates again, perhaps on more than one occasion this year. Capital Economics, for example, expects the base rate to hit 1.25% by the end of 2022.
It’s also worth bearing in mind that the MPC left a bit of a clue on Thursday as to how its members will vote at its next base rate meeting. That’s because four of its nine members voted in favour of upping the base rate to 0.75%, meaning it was just one vote short of pushing through a higher rise. As a result, a rise to at least 0.75% at the MPC’s next meeting on 17 Match could well be on the cards.
For more on the base rate rise, see our article that explores whether we’re seeing the end of the cheap money era.
