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What happens to mortgage rates if the Bank of England base rate rises to 4.25%?

Journalist: Frances Ivens, Telegraph

ended 22. March 2023

The market is pricing in at least a 0.25% increase in the Bank of England base rate tomorrow.

Will this have an impact on fixed mortgage rates? Will we see them rise or is a further base rate increase already been priced in?

Are there other ongoing factors that are having a greater impact on mortgage rates?

10 responses from the Newspage community

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Rohit Kohli
Director at The Mortgage Stop
Based on the updates we get, lenders have priced in a 0.25% increase. But I think what will push fixed rates up from where they are today is any feeling of uncertainty or doubt in the Bank of England minutes. It's the minutes that matter. Markets need the confidence to underpin their decisions so if there is a major split in the vote or the commentary contains anything that could knock confidence, we could see negative movements in swap rates that could drive fixed rates upwards. However, despite the banking issues and the higher than expected inflation figures on Wednesday, there are still some green shoots in the economy so the right message and action from the Bank of England could help maintain the relative stability we have had recently.
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Gareth Davies
Director at South Coast Mortgage Services
Aside from the obvious increase to tracker rates, I'd be surprised to see major changes with fixed products if the base rate goes up. Lenders tend to be proactive rather than reactive when it comes to base rate decision days, and if they fear the worst we see a host of changes in the day or two leading up to the decision. This week we've seen no major drama, and in fact, many rate reductions.
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Samuel Ewen
Managing Director at Rosehill Financial Services
Even if the base rate increases further, I believe we'll still see fixed rates steadily reduce. I think the commentary made alongside their decision will be key, as this can also have an impact on swap rates, which are a big factor in determining fixed rates. If anything contained in the minutes causes an increase in swap rates, this would likely see lenders increase their rates.
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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
Fixed rates aren't determined by the Bank of England base rate, so hopefully we won't see rises off the back of any increase on Thursday. But what's clear is that this is a market in a state of constant flux.
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Riz Malik
Independent Financial Adviser at R3 Wealth
In the short term, a 25-basis point increase should have little impact on pricing. Lenders are not at capacity and are eager for new business, particularly given the popularity of product transfers. The Monetary Policy Committee's comments and voting record will provide a better indication of where rates will move in the near term.
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Luke Thompson
Director at PAB Wealth Management
Looking at what lenders have been doing with their rates in the last seven to ten days I believe that any base rate rise by the Bank of England is already priced in. We have had a steady stream of emails from lenders this week confirming that they are reducing rates and this hasn't slowed down even as we move closer to the base rate decision. Swap rates are the biggest factor in relation to fixed rates at this time and these have fallen significantly since the beginning of March, which has allowed lenders more flexibility on price.
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Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
The potential impact on mortgage rates is should be minimal, given the observed reduction in swap rates following the SVB collapse. Additionally, despite rate increases in December and January, mortgage lenders continued to lower their rates.
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Gary Boakes
Director at Verve Financial
Lenders have been braced for a 0.25%-0.5% rise this week for a while, so the current rates and changes we have seen over the past 1-2 weeks would have already priced in the expected rises. The only customers that will be affected will be anyone on tracker rate and potentially a variable rate.
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Graham Cox
Director at Bridging Hub
I actually think the Bank of England won't raise the base rate from 4% despite the increase in the headline inflation rate. Ordinarily, they would, but the central banks' MPC committee will be keen to avoid any further market jitters after the Credit Suisse and Silicon Valley bank rescues. Any hike would decrease bond prices, placing strains on bank balance sheets.
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Joe Stallard
Director and Advisor at House and Holiday Home Mortgages
Think of a boat (your mortgage) bobbing along on the mortgage ocean. If you’re on a tracker mortgage, your payment rises on the wave of a higher base rate swell. It’s the same if your vessel is on a standard variable or discount sea. Higher waves equals higher payments. But if you’re sailing the calm ocean of fixed rates, you have nothing to worry about — for now. But make sure you know when your mortgage product is coming to an end. Prepare the sails, because you might want to turn about, talk to your mortgage advisor, hand on the tiller, and secure a new rate. Especially if it’s within the next six months. That should keep you tacking and gybing along nicely.