On 2 August 2018, the Bank of England raised its base rate by 0.25%, from 0.5% to 0.75%. It is the first time since March 2009 that the interest rate has been higher than 0.5%. While the rise may be welcomed by savers, some 3.5 million mortgage customers with variable or tracker mortgages will have seen their payments go up.
The Bank of England has been looking to increase rates for some months now, and this current move comes alongside an increase in the growth rate of the UK economy, which rose from 0.2% in the first quarter of the year to 0.4% last quarter. The Bank’s governor, Mark Carney, has also suggested that further rate rises could be on the horizon, with financial markets forecasting one or two further hikes of 0.25% before 2020.
How will it impact different mortgage types?
Homeowners in East Anglia with fixed-rate mortgages won’t need to worry about their mortgage payments going up. Those with a tracker or other type of mortgage directly linked to the Bank of England base rate will see their mortgage rate increase by 0.25%, and their monthly payment increase accordingly. Lenders’ standard variable rates, and other products linked to the SVR such as discounted rates, will likely increase by the same amount – although borrowers should be aware that lenders set their own variable rates and are within their rights to change their rates by less, or more, than the Bank of England rate change.
How much will my payments increase with the new rate?
The table below takes a typical current tracker interest rate of 2.5% and shows how much your monthly payments could increase based on the most recent 0.25% interest rate increase.
|Mortgage amount||Old monthly repayment (2.5%)||New monthly repayment (2.75%)|
According to the latest data from the Office for National Statistics, the average house price in the East of England is £293,000, compared to the national average of £228,000. Assuming a pre-increase interest rate of 2.5%, and an average loan-to-value for owner occupiers of around 50% (i.e. an average outstanding mortgage of £146,500), the latest rate increase would see the average homeowner in East Anglia face an increase in mortgage payments of £19 per month, from £657 to £676.
What are your next steps?
While the most recent interest rate rise may not in isolation have a substantial impact on the average homeowner in East Anglia, the spectre of one or more further increases in the coming months means that mortgage holders should pay attention to their current mortgage deal, and give consideration to whether a change of mortgage or product in the near future would be advantageous.
Customers on variable or tracker mortgages may want to consider, where possible and relevant, switching to a fixed rate before further interest rate hikes, while those coming towards the end of a current fixed-rate deal should start looking at their product and remortgage options now. It’s also worth speaking to an impartial mortgage adviser, such as our remortgage specialists here at The Mortgage Centres, who can help you find the best deal or simply advise on your best course of action.