Interest Rates Doubled to 0.5 Percent – How Does it Impact Your Mortgage?

Written by Sam Hodgson
Last updated: 3rd February 2022

The BoE has met today and confirmed that the base rate of interest in the UK will increase from 0.25% to 0.5%.

This means that the base interest rate is now 5 times as high as it was before the 16th December 2021, when it sat at 0.1%.

And with speculation of further interest rate rises over the course of 2022, many mortgage owners will be asking:

  • How does the interest rate hike affect my current mortgage?
  • And how much will a new mortgage cost at the end of my existing term?

We’ll look at how you can protect your current mortgage from the rising interest rate in the UK, whether interest rates will go up again, and what kind of mortgage to get for if you’re taking one out soon.

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Why have interest rates increased?

Inflation has been rising in the UK since early 2021, and at the moment it shows no sign of slowing down.

For as long as inflation continues to rise, the BoE is expected to continue to raise the base interest rate in an effort to keep it under control.

The most recent data from the Office of National Statistics (ONS) show that the annual Consumer Price Index (CPI) was 5.4% in December, again higher than the month prior which was 5.1% in November.

December’s inflation figure is the highest rate since 1992.

Will interest rates keep rising?

It’s not unreasonable to think that the latest rate rise could be the first in a chain of back to back rate hikes if inflation doesn’t slow down.

For context, looking at a recent history of interest rates gives us an idea of how high they could potentially climb back to:

  • Before the 07/08 economic crisis, interest rates sat at around 5%
  • They fell significantly after the crash, and remained under 1% over a decade
  • But before covid-19 hit in 2019, rates were starting to increase
  • They had gone up to 0.75% within a few years before the pandemic and weren’t slowing down – are we seeing a similar theme now?

The cost of living is set to increase further over the next couple of months with energy bills set to rise significantly over the next few months.

It’s impossible to say just how high they will rise and whether they’ll reach the dizzying heights of 5% like the early noughties, but the figures certainly point towards more rate hikes in the near future from the Bank of England.

What impact does rising interest rates have on your mortgage?

The base interest rate affects how much interest you earn on your cash savings in your current or savings accounts, and it will also determine how much you are charged for money that you borrow.

In the mortgage market, we’ve already witnessed mortgage lenders taking some of their lower interest rate products off the market since the first rate rise to 0.25% – and the latest rise will likely have the same results.

If you’ll be taking out a mortgage soon, you might be able to get a cheaper deal now compared to later on in the year.

How can you protect your existing mortgage policy from rising interest rates?

If your current mortgage is a tracker mortgage, or if you’re on your lender’s standard variable rate (SVR), your mortgage payments could increase each month in response to the rate hike.

We think it’s at least worth thinking about your remortgage options if this is the case for you – especially if you’re paying your bank’s SVR – and considering if a fixed rate mortgage could protect you from higher interest rates in the future.

Don’t forget, tracker mortgages can have early repayment charges (ERCs) applied to them to stop you from remortgaging before the end of your term. Make sure you check all the terms and conditions of your current mortgage and talk to an adviser if you have any questions.

If your current policy is a fixed rate, you have longer to react depending on the length of your term as the interest you pay is fixed at the current low rates.

What type of fixed rate mortgage is the best?

There a many different types of fixed rate mortgages available from various high street lenders, banks and building societies and specialist lenders:

The longer the duration of your fixed term, the higher interest rates you’ll pay – but they’ll be fixed for longer against rate rises.

See whether you can save money on your mortgage using our independent service or you can call us on 0117 980 7743 (8.30am to 6pm – Monday to Friday)


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How can I take out a fixed rate mortgage?

Many borrowers usually speak to a mortgage adviser when thinking about either remortgaging or taking out a new policy on a new home.

A mortgage broker consolidates all of your finance options and guides you the process each step of the way.

You’ll be confident in knowing that you’re taking out the right product for you, and you’re getting access to the best rates available on the market while doing so.

For independent mortgage advice use our service