Latest News On Interest Rates - What Does It Mean For Your Mortgage?
As the Bank of England seeks to halt the pace of inflation, interest rates in the UK have risen by a further 0.25%. It marks the fifth consecutive increase from 1% to 1.25%, bringing it to its highest level in 13 years.
The Monetary Policy Committee (MPC) voted to raise the base rate to counter soaring inflation, currently sitting at 9% (the highest it’s been for 40 years) and predicted to rise into double figures later this year.
In a statement, the Bank of England (BoE) said rising energy costs will drive living costs even higher by October and that if inflation pressures persist, it would have to “act forcefully.” The market predicts that the base rate will reach 2% by February 2023 and 2.5% by the end of 2023.
So, what does all this mean for your mortgage?
It depends on what type of mortgage you have. But a quarter of mortgage borrowers - over 2 million people in the UK - face increased mortgage repayments.
If it’s fixed: You’ll be ok for now, but if your mortgage term is coming to an end, you should start researching a new deal soon. If you don’t remortgage in time, you’ll automatically be switched to your lender’s standard variable rate (SVR).
SVR mortgage: You’ll usually revert to an SVR mortgage after a tracker or fixed rate mortgage term ends. Lenders can alter their SVR on a whim, and they are very likely to rise in the current climate.
Tracker mortgage: If you’re on a variable rate that goes up or down in line with the bank rate, you’ll face increased mortgage repayments. According to Industry Body UK Finance, the average annual repayment increase for anyone on a tracker mortgage deal is £303.
What should I do now?
Work out exactly how the new base rate affects your monthly mortgage repayments. Try to factor in further rate increases to consider the likely impact on your future monthly budget.
Perhaps you can manage, but if you think you'll feel the squeeze, it might be wise to consider your options.
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said homeowners should start looking for better mortgage deals now: “If you’re on a variable rate deal, your rate is likely to increase with any BoE change. So, you may want to consider bagging a fixed deal before any changes kick in, and while there are some bargains around. It’s worth lining up a deal sooner rather than later because when banks are convinced rises are on the way, fixed mortgage rates will go up before any announcement.”
If you’re already on a fixed rate:
You might want to search for a new mortgage deal if you’re coming near to the end of your current term. Most lenders will let you lock into a new mortgage 3-6 months before your current deal ends.
If you’ve got six months or more to go on your fixed term mortgage, you’ll either need to wait for your initial deal term to run out or pay a charge to leave early.
If you’re on a standard variable rate
Standard variable rate (SVR) mortgages are expensive to run, so you would be wise to start shopping around. You’re not locked in if you’re on an SVR, so you shouldn’t have to pay any penalties for switching products or lenders.
If you’re on a tracker mortgage
If you’re concerned about future interest rate rises, now might be the best time to switch to a fixed rate deal. Most people go for 2 or 5 years, but you can even lock into 10 years.
Before you start looking at new mortgage deals, do your homework first to find out what early exit or repayment fees you may be charged by your current lender. Some lenders will be willing to allow you to switch to a fixed rate if you stay with them, but if you swap to a new lender, you’ll likely be charged.
If you’re thinking of remortgaging early and switching lenders to get a better rate, you also need to consider the other costs you’ll face in the short term. Many new lenders will offer you an incentive to switch, such as a free valuation or cashback offer, but you’ll also have to pay an arrangement fee and solicitor and conveyancing costs.
How to get the best mortgage deal now
If you want to be sure of getting the best deal possible, it’s wise to use an independent mortgage advisor rather than going it alone.
Mortgage comparison sites are not always reliable, mainly as they don’t consider your credit history or personal circumstances. While your current lender, or any lender you approach directly, can only tell you about the mortgage deals they offer.
A specialist mortgage broker can give you access to the whole mortgage market and direct you to mortgage products you may not have considered after a full assessment of your current situation. The most competitive deals are usually secured from lenders who only use broker intermediaries.
Clifton Private Finance - Specialist Remortgage Service
Our specialist remortgage service can help you decide whether remortgaging is the best solution for you. Our expert mortgage brokers can talk you through the process, the fees involved, and help you choose the best mortgage product on the market today.