Explained: How An Interest Rate Rise Would Affect Your Mortgage Payments

10th October 2017

The Bank of England has strongly hinted an interest rate rise could be imminent. But what would this mean for your mortgage payments?

Why might interest rates rise?

Will a rate rise affect my fixed rate mortgage?

Will a rate rise affect my tracker mortgage?

Will a rate rise affect my SVR mortgage?

I’m about to buy a home - how will I be affected?

Why might interest rates rise?

The base rate (or interest rate) is set by the Bank of England and used as the benchmark for interest rates more generally.

The base rate influences how much we borrow - low rates encourage us to borrow more, in turn helping the economy grow, especially during periods of recession.

The Bank of England last raised the interest rate in 2007 just before the financial crisis hit. Back then the rate was set at 5.75%. By 2009, in the midst of the crisis, the rate had been cut to 0.5%.

We haven’t seen a rate change since August 2016, when the base rate was cut from 0.5% to 0.25% in the wake of the Brexit vote.

BOE Base rate

Bank of England Governor Mark Carney has said that a rate change should be expected in the near future “…if the economy continues on the track it’s on.”.

If the rate does rise in November, and the economy continues to carry on down that same track, the Bank of England has suggested that rates could rise further - albeit gradually and to a limited extent - during the next couple of years.

Rates are already starting to creep up

Lenders including Atom Bank, Lloyds Bank, Skipton Building Society, Principality BS, Monmouthshire BS, and Aldermore Bank have all increased their rates ahead of the expected rise. We’ll expect to see more lenders follow suit over the coming weeks.

Will a rate rise affect my mortgage?

I’m on a fixed rate mortgage deal

No immediate change

You’ll be immune from any hikes to your payments until your initial term ends.

Fixed rate deals are attractive for this very reason: even when interest rates change, your payments stay fixed, making it easier to budget and plan financially.

Remember: If you don’t remortgage by the time your initial term ends, you’ll be moved onto your lender’s expensive Standard Variable Rate (SVR).

Homeowners with an SVR are overpaying an average of £4,900 a year in interest alone for their mortgage.

Any rate rise will make the SVR even more expensive, so as always it’s a good idea to remortgage to a more suitable deal before this point.

I’m on a tracker mortgage

Immediate change

Your mortgage repayments will increase immediately, but a rate rise doesn’t mean your mortgage payments are about to go through the roof.

If you’ve recently secured a tracker mortgage, there’s no reason to feel like you’ve missed out. Many tracker deals will stay at a lower rate than lots of fixed rate deals even with an interest rate increase!

Your mortgage payments will increase immediately after a rate rise if you’re on a tracker mortgage, regardless of which lender you’re with.

Here’s an example of how a tracker mortgage would change with the likely upcoming rate increase:

tracker rate change

So if the rate went up by 0.25% you’d be looking to pay ~£190 more over 1 year, and if it went up by 0.5% you’d be looking to pay ~£380 more over 1 year.

I’m paying the Standard Varibale Rate (SVR) or discounted variable rate

Not immediate, but imminent change

It won’t be immediate, but your mortgage rate could go up within days.

Be prepared to see your payments increase regardless of your lender, however bear in mind that lenders will adjust their rates by different amounts at different times.

For example, after last year’s base rate change Nationwide reduced their SVR by the same 0.25%, Tesco Bank by 0.35%, and Kent Reliance by 0.21% - all on different days. Find more details on page 12 of our Mortgage Saver Review.

Here’s an example of how a SVR would change with the likely upcoming rate increase:

SVR rate change

So if the rate went up by 0.25% you’d be looking to pay ~£240 more over 1 year, and if it went up by 0.5% you’d be looking to pay ~£480 more over 1 year.

Two million homeowners on the SVR are overpaying for their mortgage unnecessarily, so it’s a good idea to remortgage to a more suitable deal.

Are you ready to switch your mortgage?

I’m about to buy a home

If you’re close to buying a new home, don’t be disheartened by a rate rise! A base rate of 0.5% is still incredibly low by historical comparison.

Is it still worth getting a tracker rate mortgage?

Before you automatically discredit the idea because of the likely rate change and potential future rate rises, remember that a tracker mortgage may still have a lower rate than a fixed rate deal.

Speaking to an adviser will help you find a mortgage deal that suits your unique circumstances.

Is it worth getting a fixed rate mortgage?

Fixed rate mortgages are also at some of the lowest rates they’ve ever been, plus they offer financial security.

If you’re looking to buy, now’s a good time to lock in a low rate before interest rates go up, especially given that they may rise again gradually over the next few years.

I’m still saving for a deposit

It’s not all bad news if you’re saving for a deposit and hoping to lock in a low rate when your time comes.

A higher base rate means your savings will grow more quickly with a rate rise, and a 0.5% base rate still leaves plenty of opportunity for low rate deals.

Advice from the expert


Trussle mortgage adviser Ryan explains why now is the ideal time to check if you could be on a more suitable deal.

With a potential rate rise on the horizon, there’s never been a better time to review your mortgage. Put simply, a rate rise will mean an increase in monthly payments for millions of homeowners on variable or tracker deals. As mortgage experts, this is something that Trussle can help to minimise.

I’m optimistic lenders will try to remain competitive, but inevitably a rate increase will mean they’ll have to make their deals more expensive. Rates remain historically low with some unprecedented long term deals, which we can take as a sign of the level of confidence lenders have in the market. Current ten year fixed deals at low rates suggest lenders don’t believe rates will rise drastically in the near future, which should give borrowers confidence.

Finding the ideal rate for you is always driven by your individual circumstances. While long-term security isn’t a priority for everyone, it could pay dividends if you’re looking for stability and certainty with your mortgage payments.

Check your options with Trussle

If you’re not comfortable with your current mortgage deal or are worried about how your payments may change with an interest rate rise, get in touch. We’ll let you know if you could switch to a more suitable deal and prevent your payments from rising.

Your Trussle adviser will take into account the likely upcoming rate rise as well as your unique circumstances before recommending a deal.

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