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The Bank of England base rate has been at the historic low of just 0.5% for almost two years but some economists are predicting that we will begin to see rates increase during 2011, perhaps several times. For some mortgage customers this is cause for concern and across the industry we are already seeing fixed rate mortgages increase as money market rates rise.
Some borrowers say they are actively preparing themselves for interest rate rises, for instance, by putting more into their savings accounts to build up a buffer. Others are overpaying on their mortgages to build up a reserve so they have the option of reducing their monthly payments in the future if they need to.
For those who want to be sure exactly what their monthly payments will be over a set term Nationwide for example, offers 2, 3 and 5 year fixed rate mortgages. Most of its tracker mortgage customers, can switch to a fixed rate within the ‘Switch and Fix’ range without paying any early repayment charges.
The future for interest rates remains uncertain. Listen to Nationwide’s chief economist talk about prospects for the economy, interest rates and housing market in 2011.
If you took out a Nationwide fixed or tracker mortgage after 30 April 2009 you would automatically revert to the Standard Mortgage Rate (SMR), currently 3.99%, when the deal comes to an end – which may well be this year. However, many borrowers are on the Base Mortgage Rate (BMR) which, at 2.50%, is one of the lowest from any major high street lender.
Both the SMR and BMR are variable rates so could rise. Nationwide’s BMR is guaranteed to be no more than 2% above the Bank of England Base rate, while the SMR is not subject to any cap or limit so it could increase by more than any rise in the Bank of England rate.*
To put all this into perspective, you can use Nationwide’s repayment calculator to see what impact a rate rise would have on you. For instance the calculator shows that a customer with a 25 year £100,000 repayment mortgage, who is currently on our 2.5% BMR, would see their payments rise by £52 per month if the BMR were to increase by 1%. Of course rates could go much higher, as recently as 2008 our BMR was over 6%.
Nationwide’s Switch and Fix mortgage – details to bear in mind
If you are a tracker mortgage customer and you reserved your rate on or after 10 January 2006, you can switch to a fixed rate within the ‘Switch and Fix’ range during your tracker deal period without paying any early repayment charges, although a product fee may apply.
If you are thinking about switching you need to consider that fixed rate deals in the future may not be as good as the deals available today. And, once you have switched to a fixed rate mortgage you will not be able to switch back to a tracker rate during the fixed rate deal term.
Other switching options and considerations
Any mortgage products reserved on or before 29th April 2009 will revert to the Base Mortgage Rate (BMR). If you choose to switch to a new Nationwide mortgage product, the new product will currently revert onto the Standard Mortgage Rate (SMR).
Please note that all mortgages reserved on or before 3rd March 2010 include the option to apply for a payment holiday and borrow back facility. Any mortgages reserved after this date will no longer include these facilities.
If you are currently letting your property you will be unable to switch to a new mortgage deal and your mortgage will automatically revert to the Nationwide variable rate when your current deal ends, as stated in your mortgage offer.
* Both the BMR and SMR are variable rates which we may vary in accordance with Nationwide’s mortgage terms and conditions. However, the BMR is guaranteed to be no more than 2% above the Bank of England base rate, whilst the SMR has no upper limit or cap. If you choose to switch to a new product, it is not possible to switch back to the BMR at a later date.
Payment difficulties
Of course if you ever have difficulty meeting your mortgage payments you should contact Nationwide as soon as possible.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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