How might rising interest rates affect your mortgage?

The Bank of England has raised interest rates, meaning bigger mortgage bills for some homeowners. ?This is the eleventh increase in the last year since 17 March 2022.??

On 23 March 2023, the Bank of England raised interest rates for the second time this year from 4.00% to 4.25% to combat soaring inflation.

This move will have a knock-on effect as mortgage lenders raise interest rates in response, which will increase monthly payments for some borrowers.?

When you think about this time last year, the base rate was 0.75%; the rise will cause much anxiety and uncertainty among new and existing borrowers.?

What does a rise in interest rates mean for your mortgage?

Anyone without a fixed-rate mortgage is likely to see their borrowing costs rise, although how they are affected will depend on the type of product they have. Your adviser can help you assess your mortgage deal and figure out ways to make some much-needed savings.

Only borrowers with a mortgage that moves up or down with the base rate will be affected by the interest rate change. This includes tracker mortgages and standard variable rate mortgages (which you revert to when a mortgage deal ends).

Fixed-rate mortgages

Most mortgage holders are on fixed-rate deals; they won't see any change in their monthly payments. This is because the interest rate you pay stays the same for the length of the mortgage deal.

Standard variable rate mortgages

You will usually be moved to a standard variable rate when your existing tracker or fixed-rate mortgage deal ends. For example, if you take out a two-year fixed deal and don't remortgage, you will be moved to the lender's standard variable rate. The rate will likely be considerably higher than what you were paying before, so your monthly payments will increase, and lenders can raise the standard variable rate whenever they want.

Tracker mortgages

Homeowners with a tracker mortgage will find that their interest rate payments will now go up, but when this happens will depend on their lender.

Tracker mortgages are a type of variable rate mortgage that follows the Bank of England's interest rate. So, when official interest rates go up, the rate on your tracker will rise as well. As a rule, they do not precisely match the base rate but are set at a level just above it.

For example, if the lender's rate is the base rate +1%, the interest you'd pay on your loan would be 1.5%.

Whatever type of mortgage you have, an advisor will discuss how the interest rate rise might affect you and answer any questions or concerns.

How to save on your mortgage costs

The market has changed dramatically over the last two years. The strategies given back in 2020 may not be valid; it is wise to review as you go, if nothing else, to check that your next move will be right in today's climate. ?

The best thing you can do is to speak to your financial adviser.

For example, if you're on a tracker mortgage, they can advise whether changing to a fixed-term deal to protect yourself from further rises is a good idea.

They will also inform you about the fees involved when changing your mortgage. If you are on a standard variable rate (SVR), you can switch at any time, so with interest rates rising, your adviser can help you look at available fixed-rate deals.

Homeowners on fixed deals don't have to worry about their mortgage going up until their current term ends. However, it would be best to act ahead of time to help you prepare for the changes.?

Help at Hand.

Most lenders will let you lock into a new deal six months before the current one ends, so it's a good idea to plan.

Professional advice is the way forward if you're looking to remortgage or are a first-time buyer. This will help you find the most suitable deal for your circumstances and help keep your costs down.

Do you want to explore more?

I'm always happy to discuss your mortgage consideration and needs, don't be shy; comment, send me a message or book a 1-2-1.

It's good to talk. The adage saying is 'A problem shared is a problem halved.'?

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT