Interest rates have been raised to 4.5%, putting more pressure on borrowers – particularly those on tracker mortgages, variable rates and those buying or remortgaging.

The Bank of England’s 0.25% rise is the 12^th consecutive hike to the base rate and has been made as part of its continued attempts to bring down inflation.

Today’s increase means borrowers coming to the end of a fixed-rate deal could see average increases to their monthly repayments of around £176 if they were to remortgage to a two-year deal, according to calculations by the Building Societies Association (BSA).

Paul Broadhead, head of mortgage and housing policy at the BSA said it was now widely expected that we were at, or very close to, the peak of rate rises.

However, he said the latest 0.25% increase would still have an impact on many borrowers: “Whilst our figures show that around nine in ten homeowners are not currently concerned about their ability to make their monthly mortgage payments,” he said, “only time will tell whether they have factored future increases into their household budgets.

“Lenders continue to remain alert to borrowers who are worried about making their mortgage payments and are ready to offer tailored support to anyone who may be struggling.”

How will today’s interest rate rise impact you…?

If you are on a tracker or variable rate mortgage?

Tracker mortgage borrowers will see the 0.25% rise added to their interest rate immediately. For those on their lender’s standard variable rate (SVR) today’s hike may be passed on – it’s worth keeping an eye on this so you can budget accordingly.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, warned SVRs were currently the the most expensive on the market.

“Whether fixed rates are destined to remain volatile or not,” she said “there is still an incentive for borrowers to fix, as the consecutive base rate rises have pushed the average Standard Variable Rate (SVR) to its highest point since 2007.

“A rate rise of 0.25% on the current average SVR of 7.37% would add approximately £780 onto total repayments over two years.”

If you are on a fixed-rate mortgage which is not due to end soon

If you are settled on a fixed rate mortgage and the deal is not due to expire in the next six months or so, then your mortgage repayments will not be impacted by today’s decision.

However, it’s a good idea to keep track of the base rate and mortgage rates in general if your deal is up in the next year, as it can be helpful to prepare your finances in case rates remain high.

Borrowers who have the money may wish to make overpayments on their mortgage, for example, as this may help to bring down the amount of money they need to borrow when they next remortgage.

If you are due to remortgage

If you are due to remortgage in the next few months, you may be worried today’s 0.25% hike will make any deals you may switch to more expensive.

In fact, fixed-rate mortgages, although higher than they were 18 months ago, have actually come down in price over the last few months.

Springall explained: “Those aiming to lock into a fixed rate mortgage for peace of mind will find average rates have come down slightly over the past month, but as rates average around 5%, this may still be unaffordable for some.

“The average five-year fixed mortgage rate is lower than the two-year fixed, which may encourage prospective borrowers to lock down their rate for longer.

“However, fixed mortgage rates could be unpredictable in the months to come, so some borrowers may even sit on their revert rate waiting for cheaper deals to surface.”

Revert rates are another name for standard variable rates (SVR) which we covered in the section above. To find out whether using the SVR is right for you, read this article.

Others may wish to switch to a two-year tracker deal, whilst they wait for rates to settle.

David Hollingworth of L&C Mortgages, said: “Many trackers don’t tie the borrower in with early repayment charges, but the cost of switching needs to be factored into that decision.

“Paying another arrangement fee and broker fee when switching could cost thousands and put a dent in the benefits of a new deal.

“Fortunately, most lenders will offer rates with lower fees and slightly higher rates.”

If you need further advice or guidance speak to a broker which has access to the whole of the mortgage market.

If you are a first-time buyer…

Rising interest rates are of course not music to any borrowers’ ears, least of all first-time buyers. However, if you are still in the deposit-saving stage of your homebuying journey, then today’s hike does bode well for your savings account.

Paul Broadhead explained: “Following the 11 Bank Rate increases in the last 18 months, the interest paid to savers has been rising.

“Whilst the last decade has been a difficult time for savers, particularly those who rely on their savings for income, shopping around can now make a sizeable difference to the returns available.”

For those about to take the leap, the rise is not quite so positive. Anyone in this situation is advised to speak to a broker and consider some of the support schemes available.

Alice Haine, personal finance analyst at Bestinvest, said: “First-time buyers have been helped to prop up the property market over the past couple of months as they look to escape high rental rates and the dwindling supply of good-quality stock.

“A quarter-point base rate increase is unlikely to deter them from taking the plunge and might even spur them to move faster before rates edge up even further, particularly as some lenders are looking to lure them in with 100% mortgages.”

Article sourced from https://www.thisismoney.co.uk/money/mortgageshome/article-11723431/Lenders-slash-mortgage-rates-despite-Bank-England-base-rate-hike.html

Mc Daid Mortgages do not accept responsibility for any advice provided or opinions expressed with this article. This is for information purposes only

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