Many borrowers wait for Bank of England policy announcements before making a decision on their mortgage rate. Does this have any practical value?
The Bank of England reviews the base rate throughout the year at the Monetary Policy Committee meeting. Adjusting the BOE rate helps to manage inflation and the balance between spending and saving in the market.
These BOE base rate announcements have falsely become a touchstone for mortgage borrowers to make decisions on securing rates.
How does the Bank of England Base Rate affect mortgage rates?
Bank of England Base Rate and Tracker Rates
Tracker mortgage rates are usually linked to the Bank of England Base Rate, ‘tracking’ the rate. If the Bank of England Base Rate increases, the tracker rate increases by the same amount. If the Bank of England Base Rate falls, the tracker rate falls by the same amount. A borrower with a tracker rate benefits from BOE rate drops and is harmed by BOE rises.
Bank of England Base Rate and Fixed Rates
Lender’s fixed rates (which are typically 80% of the UK mortgage market) are not directly linked to the Bank of England base rate.
They are mainly influenced by the rates at which Banks lend to each other. Also by the ‘appetite’ each Lender has for lending at the time.
Keeping an eye on the Sterling Overnight Index Average or ‘SONIA’ rate is a clearer indication of what will happen to most mortgage rates. Reduction in SONIA rate is usually an indicator that Lenders will start to reduce fixed rates.
In most lending cases, a borrower can book a rate a few months ahead of when it will be needed. They can secure a rate now and swap to lower rates if they become available during the lead in. Securing a rate early protects the borrower against rate rises.
What can I do, as a borrower to get the best mortgage rate possible?
Borrowers have set dates when they need to have a mortgage rate secured.
Either:
On the date they complete a new purchase
or
The day after their current mortgage rate ends
For new purchasers, their timing is more a matter of personal need than judging a good time based on mortgage rates.
Therefore, those most influenced by the Bank of England Base Rate are borrowers whose current rate is coming to an end and they are considering taking a new rate with their current Lender, or remortgaging to a new Lender with a preferential rate.
How soon can I start planning?
Your existing Lender will allow you to reserve a new rate between 6 and 3 months out from your current rate ending (depending on the lender).
A new Lender on re-mortgage will typically allow you to secure a rate on application today, to use within the next 6 months.
Where do I go for information on the best mortgage rates?
Current Lender
Your current Lender can give you information on what they are offering only. They cannot advise you on how their rates compare with the wider market.
Online Comparison Rate Tables
Online best buy charts can show some options from the wider market. However, you should bear in mind that:
- The tables will not show what your current Lender with offer you
- The tables may or may not be accurate
- The tables will not include all options (some will only show Lenders that provide the table publisher a commercial benefit)
- The tables will not show whether you are likely to be offered a mortgage by the new Lender
Independent Mortgage Broker
- An independent mortgage broker can investigate the whole of the market to identify the best options available to you (including those from your current Lender)
- An independent mortgage broker can let you know which Lenders are likely to offer you lending
- Your broker can answer any questions you may have