As many of you will be aware, the Bank of England has increased the base rate of interest from 0.25% to 0.5%. It is the first time in the last 10 years that we have seen an increase though – it was only in August 2016 that it was reduced from 0.5% to 0.25%.
This increase means that most mortgage lenders will increase the interest you will pay on your mortgage. However, any changes to your mortgage costs will depend on the type of mortgage you have.
Fixed rate mortgages
If you have a fixed rate mortgage – where the interest rate and your monthly payments are fixed for a set period of time – the good news is that you will continue to pay the same amount each month until the term is up.
However, if you are nearing – or have reached – the end of your product term and are looking for a new fixed rate, you will find that lenders have marginally increased the cost of these. However, the rates remain extremely low, so it is still an excellent time to secure a mortgage.
So, for now, you don’t need to worry about the interest rate rise if you have a fixed rate mortgage – it’s only when the term comes to an end that the rise is likely to affect you.
Standard variable mortgages
Those of you with a standard variable rate mortgage are likely to see a rise in your mortgage interest rate imminently, if it hasn't changed already – although this isn’t automatic and will depend on your lender.
If you have a standard variable rate mortgage, chances are that you already have a deal with a higher interest rate compared to fixed rate mortgages.
Tracker rate mortgages
A tracker mortgage is one that tracks the Bank of England base rate, which means that anyone with a tracker deal will see their monthly mortgage repayments go up in accordance with the rise in the base rate of interest.
It is likely that your mortgage interest rate will rise by 0.25% from what it is currently.
Keep in mind that the interest rate you pay will depend on the amount you borrow, proportionate to your property's value. It is normal for the interest rate to be higher if the amount you borrow is a larger percentage of the total value e.g. 95% borrowing and 5% deposit. In contrast, the interest rate is likely to be lower if you have a lower loan to value deal i.e. if you have a mortgage for 50% of the property’s value and you pay a 50% deposit.
Despite a rise in the base rate, mortgage rates are still low compared to 10 to 15 years ago and the rise is likely to be marginal. While most homeowners with a mortgage will be affected by this rise, there will be some of you who will be affected more profoundly.
You should expect mortgage lenders to introduce their new interest rates from December 1 if they haven’t already.
If you want to talk to someone about what the interest rate rise means for you and your mortgage, or for general advice on mortgage and re-mortgage options, visit Alexander Hall or ring them on 08000 38 37 36.