Now that the dust is settling on last week’s announcement of an increase in the Bank of England base rate, it’s time to assess what it really means for people with a mortgage.
For many, it could mean looking for a better deal to save yourself some money.
The Bank of England increased the base rate – the rate at which it loans money – from 0.5% to 0.75%.
Banks have been swift to pass on the increase to their mortgage customers, in many cases putting up rates by the full 0.25%, some straight away, others from September.
Whilst a 0.25% increase doesn’t sound much, in reality it will be an extra £180 or more a year per £100,000 of mortgage you have.
However, this will only affect those people who have tracker mortgages (which, as the name suggests, track the base rate) and those who are still on their lender’s standard variable rate.
It’s estimated that, despite repeated warnings from people like myself, around a quarter of mortgages – some 1.8m loans are on the standard variable rate. And 1.3m mortgages are trackers.
If you are on the standard variable rate, you really ought to think about switching to a fixed rate mortgage, whilst there are still some good deals to be had.
What was significant about last week’s rate rise was not the size of the increase but the fact that it had happened at all. And it is the second rate rise in nine months, following a similar 0.25% increase last November.
Whilst this doesn’t automatically mean more and more increases are on the way, it does suggest they might be, even if rises are limited to similar 0.25% steps.
It almost certainly means the days of super-low interest rates are coming to an end but that doesn’t mean you can’t get a good fixed-rate deal to control your repayments.
Even if the rate increases weren’t happening, getting off a standard variable rate mortgage remains a no-brainer.
The average rate for a standard variable mortgage is said to be around 4.24% and yet you can get a two-year fixed rate deal for around 1.4% – saving around £2,000 a year on a £150,000 repayment mortgage, even taking into account any fees to switch.
Uncertainties around the impact Brexit is going to have on the economy add further strength to the argument for remortgaging and switching to a new fixed-rate deal. You can fix your rate for five years for just over 2% and for 10 years at a rate just under 3% – if you want to be sure what you will be paying no matter what happens even further ahead.
As with all mortgages, it’s best to get some advice before you choose the loan that’s right for you – many of the best deals are only available to brokers anyway. For a free, no obligation discussion on any mortgage or insurance issue, please give me a call on 07767 692653.