Borrowers on variable rate mortgages and trackers are set to see their repayments rise further as the Bank of England (BoE) raised interest rates to 1.25% today.
The increase of 0.25% from 1% has been made by the central bank in a bid to try and ease inflation which is at 40-year high of 9%.
This is the fifth time the base rate has been raised by the BoE’s monetary policy committee since December, meaning mortgage rates have – in turn – been increasing for homeowners on standard variable rate deals and tracker mortgages.
What’s more, lenders have been pricing today’s rise into the market so even first-time buyers and those taking out mortgages to move home or to remortgage will be seeing fixed rates which are more expensive than they were six months ago.
Many experts are also predicting more rate rises to come with some forecasting they could climb to 2% by the end of the year and others suggesting they may even reach 3%.
Karen Noye, mortgage expert at Quilter, said: “Further rate hikes are certainly not out of the question, and this could start to impact house prices.
“The housing market is already showing signs of a slowdown and how well it can weather further rate rises, alongside raging inflation, is yet to be seen but the prognosis is not good.”
How will today’s interest rate rise impact your mortgage?
If you are on a tracker or standard variable rate (SVR) mortgage deal…
… you will be hit most hard by today’s rise because these deals track the BoE interest rate and therefore your monthly payments are in sync with this.
If you are on an SVR, the advice is to remortgage to a fixed-rate, if possible.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Switching from a standard variable revert rate (SVR) to a fixed rate could significantly reduce someone’s mortgage repayment.
“The difference between the average two-year fixed mortgage rate and SVR stands at 1.66%, and the cost savings to switch from 4.91% to 3.25% is a difference of approximately £4,418 over two years.
“A rise of 0.25% on the current SVR of 4.91% would add approximately £700 onto total repayments over two years.”
If you are on a fixed rate mortgage…
… if you are locked into a fixed-rate mortgage today’s rate rise will not impact you just yet. However, it will be worth taking a look at when the deal is due to expire because fixed rate deals have also seen price rises in line with BoE hikes therefore they are not as cheap as they used to be.
If your current deal is ending in the next six months, mortgage experts are very clear you should lock into a new deal now before rates rise further. Most lenders will keep your mortgage offer live for six months and with predictions the BoE may raise rates as high as 3% locking in now would be sensible.
Amanda Aumonier, head of mortgage operations at online mortgage broker Trussle, said: “It is advisable to opt for a longer term fix of five, or even 10 years.
“Taking out a long-term fixed mortgage offers the security of a fixed interest rate and therefore, stable monthly payments. Long term deals are very competitive at the moment. There is just 0.45% interest separating a two-year fix from a 10-year fix.”
If you are a first-time buyer…
… you are being advised to be cautious. This is because affordability checks being carried out by lenders will be taking into account the rising cost of living.
This, combined with increasing rates making mortgages more expensive and high house prices are not creating the best of conditions for those trying to get onto the property ladder.
The advice is to make sure you have as much of a deposit saved as possible and take advantage of as many government schemes as you possibly can.
There’s still time to apply for the Help to Buy: Equity scheme which closes for applications in October. This provides a loan to help you boost your deposit when buying a new build property.
Don’t forget the Lifetime ISA – a savings plan for first-time buyers which offers a 25% bonus from the government.
Pete Mugleston, MD and mortgage expert for www.onlinemortgageadvisor.co.uk, said: “It’s as important as ever for first-time buyers to stay aware of what’s going on and how it could potentially affect them.
“That being said, with schemes like Help to Buy still available and dedicated mortgage brokers who specialise in the first-time buyer market on hand to help, there are still options and support accessible for those looking to buy their first property.”
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