There’s been plenty in the news recently about interest rates rising for the first time in over 10 years. The Bank of England has raised the base rate from 0.25% to 0.5%. This means you could be paying roughly £200 more a year for every £100,000 you owe.
Why has the interest rate increased?
The rise in the base rate is an attempt to lower inflation. Inflation is the general increase in prices for goods and services. A higher interest rate often works to reduce inflation as it encourages people to save rather than spend.
What does the interest rate rise mean for your mortgage?
Fixed Rate Mortgages
If you are on a fixed-rate mortgage, nothing will change – for now. However, when the time comes to review your current mortgage deal, there’s a chance your mortgage payments will increase on a like-for-like product. Most fixed rate deals are either 2 or 5 years, so depending on when you started with your current product, you may have some time to consider your options. You can make use of a mortgage calculator to understand what your new repayments will be once your current deal comes to an end.
Variable Rate Mortgages
Those on a variable rate mortgage are at greatest risk of seeing an immediate increase in their monthly mortgage payments; this accounts for around half the mortgaged population. If you’re on a Tracker mortgage, you will definitely see an increase in your payments. As the name suggests, a tracker mortgage ‘tracks’ the base rate and therefore rises and falls with it.
If you’re on a variable rate, it could be time for you to review your mortgage. You can get in touch with an adviser or even start the mortgage application process to make sure you’re on the best deal for you.
What about my savings?
Whilst yes, you will earn more on your savings, don’t expect it to outweigh the increase in your mortgage payments. If you have £10,000 in a cash ISA, you could expect your annual interest to rise by around £25.
Should I do anything?
It may not be a bad idea to get mortgage advice, particularly if you’re on a variable rate mortgage, as there could be a better, cheaper product for you to switch to. Mortgage brokers are often your best port of call. Unlike if you went to an individual lender, they only review their own range of products to find you the best deal.
Clever Mortgages can explore much further. We review an extensive range of options from different lenders to find the one you’re most comfortable with, so you can be sure of staying happy in your home.