Following on from the news today that the Bank of England has decided to raise the Bank Rate by 0.25% to 0.75%, borrowers on variable rate mortgages are likely to see their mortgage payments increase in the coming weeks.
The Financial Conduct Authority recently released figures suggesting that over thirty percent of all mortgage borrowers in the UK have a variable rate product of some sort or another, either having chosen a non-fixed rate product, such as a tracker rate, or as a result of being on their lenders’ Revert Rate or Standard Variable Rate due to finishing their previous deal and not taking a fixed rate mortgage.
Monica Bradley, founder of Monica Bradley Associates says of today’s interest rate increase, “We’ve known that there would be an upwards movement of rates for some time, as with the economy stabilising the Bank of England couldn’t keep the Bank Rate at an emergency low forever. That said, many recent borrowers have favoured a fixed rate, which means that they will be insulated from today’s increase. For those who haven’t taken a fix, the general rule of thumb is that for those on a 20-year term mortgage linked directly to Bank of England Base Rate, for every £50,000 you have outstanding on your mortgage, today’s increase will mean an additional £6 per month on your mortgage payment.”
Monica continues, “The good news is that many lenders also thought that there would be an increase in the Bank Rate at some point in the next few months, and therefore have built that into many of the great fixed rate deals which are currently available. This means that hopefully some of the competitive deals that were on offer yesterday may be unaffected, although for how long they will still be on offer is of course an unknown.”
So, what does today mean if you’re thinking about remortgaging or moving home?
“In simple terms, it’s a question of keep calm and carry on,” adds Monica. “Realistically, rates are still ultra-competitive so there are still very good deals to be had. However, as we now know, the Bank of England are committed to keeping inflation on a tight rein, and if they feel that they need to it seems they won’t hesitate to raise the rate again. Therefore if you’re sat on your lender’s Standard Variable Rate or Revert Rate, both of which are typically over 4 per cent in the current climate, then you may benefit from speaking to a mortgage advisor to see if a fixed rate deal could save you money on your mortgage payment, as well as securing it against further rises in the future.”