At midday yesterday, 02/11/2017, the Bank of England announced an increase in the base rate from its historic low of 0.25% to 0.5%. This is the first rise in over a decade and likely to signal the beginning of the end of ultra-low interest rates.
For many under 30 it’s likely to be the first time in your economically active life you’ve experienced a rise. Even if older, you may have forgotten the drill. Below is a bit of advice on how to tackle this rate change.
Urgently check if you can save money by remortgaging before the best deals disappear from the mortgage market
Those on fixes won’t see any change, though if your deal ends soon, the one you move to may cost more. If you’re on a variable or tracker your payments will rise, probably, but not definitely, by 0.25 percentage points. Such a jump could cost £200/yr more per £100,000 of mortgage.
If your on your lenders Standard Variable Rate you are probably overpaying massively. The average SVR is 4.5%, yet the top two-year fixed mortgage is at 1.09% – the difference in cost is more than £3,000 per year on a typical £150,000 repayment mortgage with 25 years remaining. Even with switching fees you’d likely make huge savings.
If you need a new remortgage, this could be a unique window of opportunity. If you’re looking to get a better deal for your existing mortgage, it’s worth looking ASAP – as rates may be about to rise. The rate at which new fixed deals is set has already started to creep up – as lenders set them based on City swap rates (long-term predictions of interest rate trends), and these have been pointing upwards.
But most lenders set aside a tranche – say £30m worth – that they’re willing to loan at the current rate, so those deals stay till that tranche is gone. While we don’t know for certain that rates will keep rising, on the balance of probability it’s likely. So this may possible be the last chance to get a super-cheap mortgage deal.
To see what mortgage deals are available for you, your family or friends please call or email Mortgage Tree.