Homeowners waiting for next week's Bank of England interest rate announcement are being warned that focusing solely on the base rate could prove a costly mistake.
The Bank is due to reveal its latest decision on June 18, with the base rate currently sitting at 3.75 per cent. While many borrowers will be hoping for signs that interest rates could fall in the months ahead, mortgage experts say the headline figure is only one part of the picture.
Millions of homeowners coming to the end of fixed-rate mortgage deals are facing important decisions about whether to remortgage, secure a new deal or risk moving onto their lender's standard variable rate (SVR).
Mortgage Rates Not Tied Directly to Base Rate
Joseph Lane, a mortgage broker at Mortgage Lane, said many borrowers wrongly assume mortgage rates only change when the Bank of England changes the base rate.
He said: "People hear 'Bank of England decision' and assume that's the moment mortgage rates change. But for fixed-rate mortgages, that is often not how it works."
Mortgage rates have fluctuated significantly this year as lenders respond not only to Bank of England decisions but also to wider economic conditions, inflation expectations and market forecasts.
Mr Lane said lenders also pay close attention to swap rates, which are used to help price many fixed-rate mortgage products.
He explained: "Swap rates are one of the main things lenders look at when pricing fixed-rate mortgages. They reflect what markets think interest rates will do in the future."
As a result, mortgage rates can rise or fall even when the Bank of England leaves the base rate unchanged.
Tracker vs Fixed-Rate Mortgages
Mortgage borrowers on tracker products are typically affected more directly by changes to the base rate, with monthly repayments often rising or falling in line with Bank decisions.
However, homeowners on fixed-rate deals may see little immediate impact on their monthly payments. Instead, the biggest concern is often the rate available when their current deal comes to an end.
For borrowers approaching the end of a fixed-rate term, experts say the biggest financial risk can be falling onto a lender's standard variable rate.
According to HomeOwners Alliance, the average standard variable rate stood at 7.13 per cent in May, significantly higher than many fixed-rate mortgage products currently available.
Risk of Expensive SVR
Mr Lane warned some borrowers spend too much time waiting for a potentially lower rate while overlooking the risk of being moved onto a more expensive variable deal.
He said: "Borrowers sometimes spend weeks debating whether rates might fall by a small amount, while ignoring the fact they are about to roll onto an SVR above 7%.
"That is where the real damage can happen."
The mortgage broker said homeowners should focus on practical steps ahead of the June 18 announcement, including checking when their current deal ends, understanding what rate they could move onto afterwards and reviewing their finances before approaching lenders.
Mr Lane added: "Your mortgage expiry date is more important than the Bank of England date if your fix is ending soon.
"If you fall onto an expensive SVR while waiting for the perfect rate, you could wipe out any saving you hoped to make."
He also urged borrowers not to rush into a new deal without comparing the overall costs, including fees and any early repayment charges.
While the Bank of England's decision will continue to attract significant attention, mortgage experts say borrowers should avoid basing major financial decisions solely on expectations of a rate cut and instead ensure they are prepared for a range of possible outcomes.
