- Salli Anstey
IT’S A MATTER OF INTEREST – HOW THE RISING BASE RATE AFFECTS YOU
Earlier this month the Bank of England increased its base rate to 0.75%. The last time this happened was in November 2017, when it was raised from 0.25% to 0.5%, which was the first increase for more than a decade. This base rate signifies the Bank of England’s official borrowing rate to banks and lenders and influences what borrowers pay. Understandably this has caused concern for many homeowners about what this means for the future in terms of further hikes. Even in the run up to the August rise, re-mortgaging surged by 23% compared with the same month a year earlier, new data from UK Finance revealed.
So, what does this all mean for you?
If you currently have a tracker mortgage or are on a standard variable rate (SVR), you can expect to see your monthly mortgage repayments increase. Several home-owners will be thinking about the next 6-12 months in terms of their repayments and inevitably some may want to fix their rates to feel more secure. This is still entirely possible as there remain some very competitive fixed rates on the market with many 2-year options at similar levels to trackers. Plus, with some lenders we can submit an application and secure a rate up to 6 months in advance of your current deal ending.
So, is fixing the right thing to do for you and for how long? We are often asked about longer term fixed rates (such as 5 or 10 years), which are currently still at relatively low levels, yet the longer the fixed period, the more you pay. A fixed rate mortgage, however, is exactly that, you are locked in, if the mortgage is repaid during this time you can face hefty penalty fees. It’s very hard to know what your circumstance might be in 5 years’ time or indeed 10 years’, and what borrowers don’t sometimes realise is that although some fixed rates can allow overpayments of up to 10% there are usually early repayment penalties if redeemed during the fixed rate period.
Many fixed rates are portable (i.e. you can take it across to a new property) however bear in mind you may find property criteria, lender criteria and homeowner criteria all need to align. Because of this, many feel that shorter term fixed rate mortgages are better suited to them. However, if you have no plans to move and are keen to secure a longer-term rate, they remain competitive and worth considering.
Tracker mortgages are more flexible as early repayment penalties are lower (some tracker rates have no penalty at all) and many of the products now have an option to move to a fixed rate without charge. This can be helpful if you are currently unsure of your future personal circumstances which later become more stable, or if the rates rise again.
We are often asked what do you think rates are going to do? The truth is we don’t know – nobody knows what’s going to happen, especially with Brexit ahead of us, so our advice is always: Think about your own personal circumstances and plans. The rate your best friend is paying on a 5-year fixed may not be the right advice for you. What the media is saying about property prices or rate rises is worth considering but the right mortgage for you will be based on your thoughts, concerns and plans over the next few years. You will want to consider whether you’ll be able to afford a rise in interest rates. In other cases, a simple re-evaluation of all your finances may be a good idea for the time being.
Here at Private Wealth Mortgages we can assess your current circumstances and any plans, help you consider all the viable options and advise on the best way forward. As you have read above, changing your mortgage doesn’t automatically mean changing lender or incurring additional costs. We will always consider what your current lender, if you have one, will be able to offer, along with what else is available in the market place.
We are more than happy to review your current mortgage with you, whether it be a standard variable rate, tracker or fixed rate coming to an end, for no fee as we always offer a free, no obligation consultation as part of our promise.
CONTACT US today for more information on 01403 540126, visit our ‘Remortgaging‘ section on our website, or email: email@example.com