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

The Bank of England base rate affects mortgages differently. Find out how the base rate could impact your mortgage payments and discover what mortgage options are more affordable.

The Bank of England base rate in 2022

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.

*Our tracker mortgage submissions data is correct from November 2022.

What the Bank of England base rate increase means for first time buyers

First-time buyers will feel the impact of the increased Bank of England base rate. 

Buying a home is already difficult for many first-time buyers, so the rising interest rates and costs will not make this easier.

But, options available could make things easier for first-time buyers.

Tips for first-time buyers:

  • Save as much as possible for your deposit so that you can borrow less and get access to better mortgage rate options

  • Keep in mind the fees  attached to a mortgage deal

  • Consider different mortgage options, such as tracker mortgages

  • Speak to a mortgage broker and see if they can find a deal to suit your needs

What the Bank of England base rate increase means for buy to let mortgages and landlords

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. 

What the Bank of England base rate increase means for fixed mortgages

When you’re on a fixed-rate mortgage, your interest rate will stay the same until the end of your agreed fixed term. So, you will not see any change in the interest you pay. 

This is good news if you’re already on a fixed-rate mortgage with a low-interest rate, as the increasing base rate will not affect your monthly repayments.

However, if your mortgage term is due to end in the next 6 months, now could be a good time to start considering your options for when you need to remortgage, as they will likely be higher than when you last fixed.

The average 2-year fixed rate hit 4.65% in December, according to Moneyfacts, however, this is a significant decrease from the 6.46% rates seen in October.

What the Bank of England base rate increase means for tracker mortgages

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.

What the Bank of England base rate increase means for variable rate mortgages

If you’re on a variable rate mortgage, you may have seen your mortgage repayments increase over the past year, due to the difficult financial climate.  

However, standard variable rates (SVRs) are not directly linked to the BofE base rate and are instead decided by the lender. 

If your mortgage repayments are becoming difficult to afford, you should consider speaking to a mortgage broker to find out what your options are.

When does the Bank of England base rate change?

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.

Bank of England base rate guide

Find out more about the Bank of England base rate

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Important info & marketing claims

You may have to pay an early repayment charge to your existing lender if you remortgage. Your savings will depend on personal circumstances.

Your home may be repossessed if you do not keep up repayments on your mortgage.

*The savings figure of £506 is based on Better.co.uk remortgage customers in December 2023. Read more on our marketing claims page.

We can't always guarantee we will be able to help you with your mortgage application depending on your credit history and circumstances.

Average mortgage decision and approval times are based on Better.co.uk's historic data for lenders we submit applications to.

Tracker rates are identified after comparing over 12,000 mortgage products from over 100 mortgage lenders.

As of January 2023, Better.co.uk has access to over 100 lenders. This number is subject to change.

For buy-to-let landlords, there's no guarantee that it will be possible to arrange continuous letting of a property, nor that rental income will be sufficient to meet the cost of the mortgage.