Following last month's decision to increase the base rate of interest to 0.75%, many borrowers will have been waiting with bated breath to see what their providers would do, especially those on variable rate mortgage deals. Now that we are a month along, let's see how right they were to be worried.
"A base rate rise can be an anxious time for borrowers, particularly if they are on a variable rate deal," commented Moneyfacts.co.uk finance expert Charlotte Nelson. "Many would have assumed that a 0.25% increase to base rate would mean they would have automatically seen the full 0.25% passed on straightaway." Luckily, our data shows that while variable rates have seen a rise, no average has so far increased by the full 0.25%.
This means borrowers can breathe a sigh of relief, but at the same time, they will still want to adjust their budgets to account for some rises in their monthly repayments. The table below illustrates that while there hasn't been a 0.25% increase in the average, all except the two-year fixed rate have seen an increase.
|Standard variable rate (SVR)||4.72%||4.84%|
|Two-year tracker rate||1.95%||2.17%|
|Lifetime tracker rate||3.22%||3.44%|
|Two-year fixed rate||2.53%||2.53%|
"After November's rate rise last year, the full 0.25% was seen in the average two-year tracker just 16 days later," Charlotte said. "This time, providers have been a lot slower to react, which may become the norm [for this type of deal]".
In contrast, 60% of providers have already increased their standard variable rates (SVRs), and only two of these (Bath BS and Principality BS) have passed on less than the full 0.25%. What's more, there's no guarantee that most of the remaining providers won't follow, as so far only Yorkshire Building Society has announced that it will not be increasing its SVR.
Additionally, it's worth remembering that SVRs tend to be the highest rates in the market, as you can see from the table averages above. Therefore, while SVR borrowers may feel they've avoided the full impact of the latest base rate rise, they are still not enjoying a competitive rate, with the highest SVR available currently at 6.33%.
"The two-year fixed rate mortgage market is a completely different story, with the average rate remaining the same over the course of the month," explained Charlotte. "Many providers had already priced the rate rise into their fixed rate mortgages in the lead-up to the announcement, as they are aware that a rate rise causes many borrowers to reassess their deal."
By not increasing rates, fixed rate mortgage providers can appeal to those who are now considering remortgaging, which anyone sitting on their SVR would do well to consider. Charlotte has calculated that these borrowers could save £250.35 a month (based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis) simply by switching from the average SVR (4.84%) to the average two-year rate (2.53%).
Don't forget that there are deals to be found in our Best Buys that are much better than average, as well. And with more base rate rises likely in the foreseeable future, borrowers may even want to look at fixing their mortgage rate for five years or more. Charlotte concluded: "Borrowers now shouldn't rest on their laurels and opt for a fixed deal to protect themselves against any future rate rises."
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.