Mortgage rate rises: Bank of England base rate remains at 5.25%

Mortgage rate rises could impact self builders and renovators
Mortgage rate rises could impact self builders and renovators (Image credit: Getty Images)

Mortgage rate rises have seemingly halted as the Bank of England (BoE) have held interest rates at 5.25% for the third consecutive time.

The decision impacts millions of homeowners as this will affect self build mortgages and renovation mortgages

While interest rates did not change in December, this is no guarantee that it will not rise in the future should inflation rise again. 

Here’s the latest on how mortgage rate rises could affect you and house prices, as well as who would be most impacted by rises. 

Could I be affected by mortgage rate rises?

For those with variable rate tracker mortgages tied to the Bank of England base rate, an interest rate increase will likely lead to an immediate rise in mortgage payments.

People with standard variable rate mortgages will probably see their rate go up with any interest rate increase. However, the exact increase depends on your lender, so it's not guaranteed. If you're unsure, you can review your mortgage terms and conditions in the original mortgage offer document.

People with fixed-rate mortgages might not face mortgage rate rises immediately but they will also be affected when their deal ends. If interest rates go up, refinancing could become more costly, likewise, if they go down it could become cheaper.

The timing of any changes in your mortgage payments depends on the type of mortgage you have and when your current deal expires.

Mortgage rate rises could make it harder to find cheap deals

Interest rate increases will have a knock-on effect for mortgage rates (Image credit: Getty Images)

How will renovators be affected?

Interest rate rises could affect those renovating a house in a couple of different ways. Those who’ve taken out a loan to fund their project could find that a rise means the project will cost more to complete. 

And renovators who intend to live in or keep and rent out a property may experience problems due to the cost of refinancing as mortgage prices surge.

Getting a renovation mortgage is also getting more complex due to stricter bank rules and new government regulations to protect borrowers. The good news is that some lenders still offer these mortgages, but you need to know their requirements before applying.

Renovation mortgages often have higher interest rates than regular ones because lenders take on more risk when lending money for home improvements. However, they can still be a helpful choice if you want to enhance your home but can't afford to pay for it all at once.

As for renovation mortgages, it is likely that those on tracker or variable mortgages will be affected if interest rates rise. But as with conventional mortgages, those on fixed-rate deals will be unaffected.

What about self builders? 

Self build mortgage interest rates generally exceed standard rates for purchasing or refinancing a home, typically ranging from 4% to 6% annually. 

The associated arrangement fees are subject to variation, contingent upon the chosen broker or lender. 

Additionally, the duration of your commitment to the lender typically ranges from one to three years, depending on the specific lender and product selected.

Mortgage rate rises could impact self builders

Self build mortgages offer stage payments, based on the cost of each stage of work (Image credit: getty images)

And while interest rates are a key element of the cost of a mortgage, many products in the market have associated fees which also need to be considered.

“At Hanley Economic, for instance, our average project takes 19 months to complete and after receiving the final completion certificate we offer a lower rate of interest as our risk reduces accordingly, without financial penalty to the customer — therefore any rate increase to self build mortgages should be viewed in this context,” says Lownds.

Lownds too stresses the benefits of seeking mortgage advice at the earliest point in a project, so aspiring self builders can access the most appropriate self build mortgage for their projects.

Could interest rates rise again?

The Bank of England will hold its first interest rate meeting in January 2024, where it will consider factors such as the rate of inflation, economic growth and the employment rate.

Inflation is being driven up by worldwide supply shortages, including the construction materials shortage, while the UK employment rate stood at an estimated 75.2% in September, 0.5 percentage points higher than between February-April. 

Plus, energy price rises are set to hit millions of homes this winter, and a shortage of cheaper fixed rate energy tariffs will prove problematic for those shopping for a better deal. 

These factors could all contribute to rising interest rates, which the current average 5-year fixed mortgage rate is now 5.63%, up from 4.32% a year ago and the average 2-year fixed mortgage rate is now 6.16%, up from 4.44% a year ago.

Joseph Mullane
News Editor

News Editor Joseph has previously written for Today’s Media and Chambers & Partners, focusing on news for conveyancers and industry professionals.  Joseph has just started his own self build project, building his own home on his family’s farm with planning permission for a timber frame, three-bedroom house in a one-acre field. The foundation work has already begun and he hopes to have the home built in the next year. Prior to this he renovated his family's home as well as doing several DIY projects, including installing a shower, building sheds, and livestock fences and shelters for the farm’s animals. Outside of homebuilding, Joseph loves rugby and has written for Rugby World, the world’s largest rugby magazine.

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