Interest rates rose for the first time in a decade this month. Though this widely-anticipated move shouldn’t have too much of an impact on the general economy, it may affect your mortgage payments.
The Bank of England’s Monetary Policy Committee increased the base rate from 0.25% to 0.5% (the level it was at in July 2016, before it was cut the following month).
Combined with the looming uncertainty of Brexit and the previously scheduled tax increases and stamp duty changes, lenders could be sent scurrying to re-consider their financial position. If they do, different types of mortgage can expect to be affected in different ways.
Standard Variable Rate (SVR)
In theory, lenders can charge whatever they want with their Standard Variable Rate. In reality, the SVR will be raised in line with the full 0.25% increase, with immediate effect.
If your mortgage is on a SVR rate, the increase will kick in from December. If you are a new borrower, you’ll be impacted straight away.
Base Rate Tracker
Base Rate Trackers follow the base rate movements by a fixed margin (so, for example, your mortgage rate may be base rate + 1%, or base rate + 2%).
Similarly to the SVR, your mortgage would increase by 0.25% in December, and new borrowers will be impacted straight away.
Many borrowers prefer fixed rate mortgages as, with a rate fixed for the agreed duration, you know for certain what your monthly payments will be every month.
After the end of your fixed term, however, your mortgage interest rate could be increased to the lender’s Standard Variable Rate, which will have been increased in line with the BoE’s increased base rate. It could be a lot higher than you expect.
If you have 6 months or less to go on your Fixed Rate mortgage, now is the time to start shopping around for your next mortgage.
Reviewing and Improving Your Financial Position
Trevor Jones from Just Financial Services (Wales) Limited says “Although rates have increased, there’s no need to panic. It’s always a good idea to have an annual review of your financial position, with a view to making improvements where possible. If you are in the last 6 months of your Fixed Rate mortgage, you will be able to apply for a new mortgage at today’s rates, which will protect you from any further rate rises. Essentially, you can book your new mortgage 6 months in advance.”
Trevor gives an example of how re-mortgaging can be beneficial:
The client had two properties, both on SVRs.
Property 1 was on standard variable rate 4.49%, paying £201.27 per month interest only. The re-mortgage is a 2 year fixed rate of 2.99%, paying £168.19 per month interest only.
The client was able to release £5,000 equity from the property, and saved around £33 per month in interest costs.
The total benefit of this re-mortgage was £5,792 over the 2 year period.
Property 2 on standard variable rate 4.49% paying £227.17 per month interest only. The re-mortgage this time is a 5 year fixed rate of 3.09%, paying £193.13 per month interest only.
The client was able to release £6,000 from this property, and saved around £33 per month in interest payments.
The total benefit of this re-mortgage to the client was £7,980 over the 5 year term.
Combined, this client is now £13,772 better off for re-evaluating his property portfolio and speaking with Trevor. In both instances, the clients were given a free valuation, no arrangement fees, and free standard legal fees.
It’s Not Too Late
Trevor concludes, “It’s not too late; re-mortgage deals are still available. In fact, the best 2 year fixed fees free re-mortgage rate today is 2.49%.”
To find out how much your mortgage rate will increase, you can use Zoopla’s handy calculator by clicking here.
If you need to review your mortgages or are looking to get a BTl mortgage, call Trevor on 01792 894226 or email him directly email@example.com.
If you would like some free advice about BTL property market in Swansea, give us a call today to book a meeting on 01792 430100 or email firstname.lastname@example.org