Rate Rise in UK has Minimal Effect, For Now

Following the Bank of England’s first interest rate hike in 10 years, we publish here Knight Frank’s comments by its various experts.


Simon Gammon 

Managing Partner, Knight Frank Finance



We are witnessing the Bank of England raising their base rate for the first time in a decade. It has been a long 10 years since the base rate last went up, so today represents the first time many UK borrowers will have ever experienced an increase in their mortgage payments. The 0.25% lift in the base rate will likely be passed on to borrowers on variable rate mortgage deals almost immediately – with a material effect. Although the base rate is still just 0.5%, this quarter point increase translates into an extra £250 a year in interest for every £100,000 of borrowing. Someone therefore with a £500,000 mortgage will be paying more than £100 extra in interest every month. Only those on a fixed rate deal are likely to avoid some sort of increase.

The question is, does this rate rise signal the start of a series of future base rate increases? While it could be actioned over a long period of time, is the country finally starting to move towards a normalisation of the base rate away from ultra-low levels? Libor and swap rates, the money market rates which determine fixed-rate pricing had risen in anticipation of the rate rise, and this may continue if further rises are anticipated.

As mortgage lenders adjust to this new landscape, home loan deals are likely to be launched and withdrawn at a rapid pace. In a rising rate environment, we can expect the mortgage market to become more volatile for a while. Mortgage lenders, keen to meet their lending targets, will continue to play with rates to ensure they are in the best-buy tables, resulting in some ‘jostling’ in the market. When rates are being launched and withdrawn so quickly, borrowers will want to make sure they have access to the most upto-date information to enhance their opportunity of getting the best deals.

The argument for taking a fixed rate, is ever stronger. Borrowers who spot a good mortgage deal in the coming months should grab it.

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