Bank of England base rate increase: How does it affect mortgages?

Many mortgage customers will have seen interest rates go up as a result of the rising Bank of England base rate, which has gone up 8 times since December 2021.

Despite this, mortgage approvals have stayed fairly consistent with pre-pandemic levels.

Rise of tracker mortgages vs. fixed rate mortgages

The mortgage market has noticed a marked increase in applications for tracker mortgages since September.

In fact, 71.8% of all tracker mortgage submissions at Better.co.uk in 2022 were submitted between October 1st and November 14th.* 

Tracker mortgages are linked directly to the BoE base rate and fluctuate according to whether the base rate goes up or down.

Tracker mortgages became a more affordable choice for many as fixed mortgage rates soared since the September mini-budget fallout.

As of 15th December 2022, the BoE base rate now sits at 3.5% - an increase of 0.5%. Since November, the base rate has increased by 1.25%.

This will likely impact the popularity of tracker mortgage applications; especially as fixed-rate mortgages begin to come down and the BoE continue to raise the base rate in 2023 as expected.

However, for the time being, tracker mortgages still remain a cost-effective mortgage product. Remember to speak to your mortgage broker and discuss your options around tracker mortgages with no early repayment charges. Should rates swing back in favour of fixed mortgages next year, you might be able to remortgage early and switch to a more economical product.

Like many mortgage customers, buy-to-let customers will see their mortgage costs rise in recent months.

Buy-to-let customers will be paying more each month unless they are already on a low fixed rate that is not due to expire in the next 6 months.

Rising interest means many landlords are increasing their tenants’ monthly rent accordingly, making renting more expensive. This will help landlords to make up for their rising monthly repayments, but it can put a strain on tenants. 

If you are a buy-to-let landlord with a fixed rate due to expire in the next 6 months, you will benefit from looking at mortgage rates before the end of your term. 

We’ve found that since January 2022, 4.1% of Better.co.uk's customers’ mortgage applications have been for tracker mortgages. 

Significantly, 71.8% of all tracker mortgage applications have come in the 6 weeks following the mini budget in September 2022. This is because tracker rates are currently lower and more affordable than fixed-rate mortgages.

Are trackers a better option than a fixed rate

At first glance, getting a tracker mortgage may not seem like the best approach while interest rates continue to go up. But they could be a better choice than fixing your mortgage at a high rate for 2, 3, or 5 years.

Mortgage rates have fallen from their October peak of 6.46%, but they remain high. According to Moneyfacts the best two-year fixed-rate mortgage now costs 4.7%.

Locking in that fixed rate for 2 or more years may still end up being more expensive than a tracker. This could be the case even if the base rate and trackers continue to increase in 2023. However, this is worth keeping an eye on next year.

The BofE base rate has recently increased approximately every 6 weeks and is often a response to fluctuations in the rate of inflation.

The next base rate change can be expected in early 2023.