The current financial situation is not one that is likely to bring many smiles to faces. From big business to people simply trying to make ends meet, the cost of living is proving a challenge across the board.

As a homeowner, or as somebody wanting to be able to call themselves a homeowner in the near future, this current situation is one to keep an eye on for sure. 

A specific change has taken place recently which is worth knowing about, and it involves the Bank of England. They have increased their base rate, which has repercussions across the financial climate here in the UK. 

In this blog, we take a look at what this means, and what the effects could be for you as somebody who owns, or is looking to own, their own home.

What is the Bank of England’s Base Rate?

The Bank of England’s base rate is the rate it charges to other banks and to mortgage lenders when borrowing money. So with regards to a person’s mortgage, lenders will borrow money from the Bank of England and then that money will be used to cover the cost of purchasing a property. The homeowner then pays that figure back to the lender in the form of mortgage repayments.

Lenders themselves however have to cover the interest rates they are being charged by the Bank of England. One typical way in which they do this is by increasing their own mortgage rates for borrowers.

What increase has taken place?

The big news is that the Bank of England has recently increased the base rate of interest it charges. 

The rate was previously 0.75%. Unfortunately however, this rate has now been raised by 0.25% to 1%.

What effect will this have on my mortgage?

This depends on the type of mortgage you have. If you have a fixed rate mortgage, then no change should take place until the end of the fixed period for which you have signed up.

If you have a variable rate mortgage however, then you can expect to see some unwanted but unavoidable increases to your mortgage repayments in the near future.

If this applies to you, then this is some more unwanted financial news on top of all the other less than desirable headlines over the past few weeks and months.

What should I do?

If you are approaching the end of a fixed mortgage term, or entering the market and looking for a fixed mortgage deal, then opting for another fixed rate deal is not a bad option. This will at least provide stability and consistency in terms of your outgoings.

This will also be beneficial if the cost of living crisis and general financial upheaval continues for a sustained period, which many expect it to do. 

A variable mortgage at this point in time is a riskier option, as the economic market seems to only be moving in one direction at present. A variable rate is an option that leaves you susceptible to fluctuation and the potential of having to make repayments beyond what you had anticipated.

It is of course possible to switch from a variable rate to a fixed rate, and this is an option worth considering – provided you can find a deal that works for you.

Stick or twist when getting on the ladder?

If you are considering making the move onto the property ladder any time soon, then the cost of living crisis, base rate increase, and your own affordability criteria are all factors that need to be carefully looked into.

It is by no means impossible to get onto the property ladder at present, and there are ample reasons for doing so. But it should be stressed that doing so haphazardly and without the right level of planning and careful decision making could backfire.

For contractors and freelancers who are looking for a mortgage, our free mortgage advice can set you on the right path to find the kind of deal which will serve you well over time. But be sure to consider all factors before diving into a mortgage, as the current economic situation is one that needs a careful approach to say the least.