Property – what do base rate rises mean for homeowners?

Over recent months the Bank of England’s interest rate has been increasing. In May, the government announced that the Bank of England’s base interest rate would rise from 0.5% to 1% and then on 19 June they further increased the interest rate to 1.25% – the highest percentage the country has seen since March 2009. Whilst this means that interest may accrue at a higher rate in a savings account, this also means that mortgage payments may be slightly higher. Below, we visit what this practically means for homeowners.

Will mortgage payments increase?

If you are a homeowner with a mortgage over your property, you may likely have a fixed rate mortgage – meaning that your lender has agreed to cap your interest rate at a set percentage. This would have been granted for a fixed period of time (typically anywhere between 2 and 10 years). If you are under a fixed rate scheme and are within the period of time for this scheme, your monthly payments and interest rates will remain unaffected until your fixed period comes to an end. The Bank of England’ increase in its base rate will therefore not be applicable to you. However, if you do not have a fixed rate mortgage your mortgage payments will be increasing.

How much will payments increase by?

Should you fall into the category whereby your mortgage payment will be increasing as you are not party to a fixed rate mortgage scheme, you will receive notice in writing from your lender following every interest rate change with confirmation as to how much your mortgage payment has increased by and when this change will take effect from. It is difficult to know exactly how much each individual’s mortgage payments will increase by as a number of factors will affect the amount to be repaid – whether the mortgage is on an interest only or repayment basis, along with the length of time the mortgage has been taken out for (i.e. 5 years or 25 years). If you have any further concerns in this regard, your lender should be able to assist with any specific queries.

If you are in the process of buying a property

If you are in the process of buying a property and currently have a mortgage offer, you should consult with your mortgage lender/broker to check that your mortgage offer remains valid on the terms agreed. Lenders have the right to withdraw their offer at any time should circumstances change. This means that should a lender feel you will be unable to keep up with monthly payments due to the increase in interest rates, they will withdraw their offer to you.

Whilst we are not qualified to advise you of the type of mortgage which would suit your circumstances best, we are more than happy to assist with any legal queries which you may have. As a part of the service which we offer, we will arrange to prepare an extensive report for you on the terms of your mortgage offer. For any legal queries, please contact us at our residential conveyancing department who will be able to assist you.


Joshua Watkins
Partner, Head of Residential Property
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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