Finance Matters Insights
Fixed mortgage rates rising despite Bank of England hold: What it means
The Bank of England held the base rate at 3.75% last week, but mortgage rates have still been moving upwards.
If you're in the market to buy or have an upcoming remortgage, this one is for you.
📊 Current interest rate outlook
Inflation increased to 3.1% in August, moving further from the Bank of England's 2% target.
A large part of the recent increase has come from higher global energy prices. If those costs remain elevated, they could eventually feed into transport, food and the wider cost of doing business.
Based on energy prices, the Bank now expects inflation to rise to around 3.75% by the end of this year and slightly above 4% in early 2027.
Six members of the Bank's Monetary Policy Committee voted to keep the base rate at 3.75%, while three voted to increase it to 4%. So, while the base rate has been held, the possibility of future increases has returned.
🏡 Why fixed mortgage rates are increasing
Tracker mortgages tend to move directly alongside the base rate. As the base rate was held, someone with a tracker mortgage would not usually see an immediate change to their rate.
Fixed-rate mortgages do not work in quite the same way.
Lenders price fixed deals partly according to what financial markets expect interest rates to look like over the next two, five or ten years. These expectations are reflected through swap rates, which influence the cost of providing fixed-rate mortgages.
Swap rates can move before the BoE changes the base rate. So, if the market expects inflation to remain higher or believes future rate increases are becoming more likely, the cost of fixed-rate funding can increase.
Lenders then reflect that additional cost in the mortgage rates offered to borrowers.
This is why an unchanged base rate does not always translate into unchanged mortgage pricing. Fixed rates are shaped by where markets believe interest rates are heading, not only where the base rate sits today.
📌 If your fixed deal is coming to an end
You cannot predict where mortgage rates will move, but you can prepare early.
It's worth reviewing your options around six months before your current deal ends to avoid automatically moving onto a more expensive standard variable rate. Many lenders allow you to secure a deal several months in advance. Depending on the terms, you may also be able to switch to a better rate before completion if the market improves.
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F
Fisayo Martins
Founder at Finance Matters UK
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