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Fixed-rate mortgages get more expensive as base rate hike looms

As speculation mounts that the Base of England will announce a base rate hike tomorrow, mortgage lenders have begun increasing the cost of deals for first-time buyers. At midday tomorrow, the Bank of England’s Monetary Policy Committee will announce whether the Bank’s base rate will be increased from an historic low of 0.25% – a move that could potentially drive up mortgage costs. For some buyers, though, historically cheap deals have already disappeared, with lenders upping their fixed-term mortgage rates throughout October.

  • If you’re considering remortgaging and would like impartial, expert advice on finding the right deal, call Which?

    Mortgage Advisers on 0808 252 7987.[1]

Homeowners race for cheap fixed deals

Ahead of tomorrow’s announcement, mortgage lenders have seen a surge in applications for fixed-rate deals, as borrowers with variable rate mortgages[2] look to beat possible rate rises. One lender, Yorkshire Building Society, has reported its ratio of fixed-rate to variable rate applications soaring from 35:1 in August to 64:1 in October.

Rate speculation affects first-time buyers

An increase to the base rate is likely to have a significant effect[3] on those with tracker[4], discount[5] and standard variable rate mortgages, as many lenders pass on the cost of the base rate rise to their customers. But mere talk of an increase can also affect the cost of fixed-rate mortgages.

Moneyfacts data from earlier this month showed that 21 lenders upped their rates on fixed-term deals slightly in the first week of October, when swap rates increased. Swap rates are the rates charged by banks for lending to each other – and as lending becomes more expensive for banks, they increase the cost to their customers. Unfortunately for first-time buyers, this means the average two-year fixed rate at 95% loan-to-value has increased by 0.10% from September to October, to reach 4.26%.

Are longer-term fixes short term solutions?

While it’s wise to avoid staying on your lender’s standard variable rate (SVR), rushing to remortgage isn’t the right decision for everyone.

A longer-term fixed deal[6] might provide certainty for now, but you could end up spending more in the long run once you’ve factored rates, fees and any penalties into your costs. With this in mind, we recommend shopping around and taking advice from your mortgage broker before rushing to switch your deal.

Competitive deals for remortgagers

While first-time buyers with small deposits have seen rates increase significantly, banks have continued to offer highly competitive deals to remortgagers and home buyers with bigger deposits. Indeed, at 60% loan-to-value, the cost of a two-year fixed-rate deal increased by just 0.03% in the last month, to 1.69%.

This means that deals at this level remain significantly below the average rate of 1.83% recorded six months ago.

Look beyond eye-catching mortgage offers

At a time when base rate speculation is high, it’s important to examine any potential deal carefully. Customers looking for longer-term fixes may see new a flurry of new offers, as lenders look to entice concerned variable rate constumers. As an example, Nationwide pledged to shave off up to half a percent from some of their fixed-rate deals yesterday.

At the same time, it confirmed customers on variable deals would face increases in line with any base rate rise. It’s also worth remembering that headline rates only tell part of the tale – weigh up each individual deal by the total cost over the life of the loan, as well as any additional fees and charges.

Will my mortgage get more expensive?

While there’s no guarantee that lenders will increase the costs of variable mortgages, this is a likely outcome for many mortgage-holders if the base rate is raised. Use our rate calculator below to find out how an increase in your mortgage rate could affect your monthly repayments.

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  1. ^ Which?

    Mortgage Advisers (

  2. ^ variable rate mortgages (
  3. ^ significant effect (
  4. ^ tracker (
  5. ^ discount (
  6. ^ fixed deal (

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