Interest Rate Changes

How Interest Rate Changes Affect Your Mortgage

Interest rates are one of the biggest factors influencing the cost of borrowing in the UK. When the Bank of England base rate changes, it can directly affect mortgages — whether you’re a homeowner looking to remortgage or a first-time buyer planning your first step onto the property ladder.

Understanding "How Interest Rate Changes Affect Your Mortgage" can help you make more informed decisions about your mortgage.

The Bank of England base rate is the rate banks and building societies pay when they borrow money. Lenders then use it as a benchmark for setting their own interest rates, including mortgages.

  • When the base rate rises: Mortgage repayments often increase.

  • When the base rate falls: Borrowing typically becomes cheaper, easing repayment pressure for some borrowers.

How Rate Changes Affect Different Mortgages

Not all mortgages respond to rate changes in the same way. Here’s how the most common types are affected:

Fixed-Rate Mortgages

  • Your monthly repayments stay the same for the duration of your fixed term.

  • This provides certainty and protection from rising rates during the fixed period.

  • However, when your deal ends, you may be moved to your lender’s Standard Variable Rate (SVR), which is often higher and may change in line with interest rate movements.

Tracker Mortgages

  • These follow the Bank of England base rate  directly, plus a set percentage.

  • If the base rate rises, your repayments rise by the same amount; if it falls, your repayments also fall.

  • This means your payments can fluctuate more often.

Standard Variable Rate (SVR) Mortgages

  • This is the default rate set by your lender once your initial deal ends.

  • SVRs often move in line with changes in the base rate, but the lender has full discretion.

  • Payments can be unpredictable, and SVRs are usually higher than introductory deals.

Discount Mortgages

  • These are linked to the lender’s SVR, offering a discount (e.g., “SVR minus 1%”).

  • While you benefit from lower rates compared to the SVR, your payments will still move up or down if the SVR changes.

What This Means for You

If you’re on a tracker or discount deal: Expect your repayments to change whenever the base rate moves.

If you’re on your lender’s SVR: Your payments could go up or down at your lender’s discretion, often in line with market conditions.

If you’re on a fixed-rate deal: You’re shielded from immediate changes, but it’s important to prepare for what happens when your fixed term ends.

Practical Steps You Can Take

Review your mortgage regularly to ensure it still meets your needs.

Seek professional mortgage advice to understand how changes may affect you and to explore suitable alternatives.

Budget with flexibility so you’re prepared for potential increases in repayments.

Final Thoughts

A mortgage is one of the biggest financial commitments you’ll ever make, so it’s important to understand how it works before you proceed.

Always speak to a qualified mortgage adviser who can assess your personal situation and help you find the most suitable option.

This article is intended for general information only and does not constitute financial advice. Always seek personalised advice from a qualified mortgage adviser before making any financial decisions.

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