The Bank of England has indicated that the UK will see a rise in the Bank of England base rate in coming months. The BOE base rate has been at a historically low level of 0.1% since prior to the pandemic.
This article focuses on the reasons why there will potentially be a rise in interest rates and equally as a borrower the effects and what steps can be taken to improve your position.
Rising inflation
The rate of inflation refers to increasing costs for things like our weekly shop and our energy bills. Consumers are already being affected by manufacturers passing on increase costs due to the rising costs of labour, energy, materials, and transport.
The Bank of England is targeting to halve inflation to 2% and a significant factor in achieving this is to increase interest rates to slow down inflation growth.
Impact of a base rate rise
The Bank of England base rate is a benchmark for the cost of borrowing. If the Bank of England base rate increases, this will affect borrowing through mortgages, loans, and credit cards. As providers pass on the increased costs to consumers.
The bottom line is that if the base rate rises so will the cost of borrowing.
The effect on mortgages
As the banks base rate potentially increases, so will the cost of mortgage borrowing. Therefore, lenders will increase their rates for new mortgage borrowing. This will impact first-time buyers, home movers, remortgages and equally investors.
Approximately 20% of borrowers in the UK are either on variable or tracker rate products. This type of product will be most immediately affected with any base rate increase as lenders will pass on the cost relatively quickly. So, your monthly mortgage cost is likely to increase imminently.
For those borrowers with a fixed rate, whilst within the fixed rate period your deal will not be affected. However, now is a good time to review when your fixed rate period ends and ensure you have this prioritised to review. If your scheme ends within the next six months, then we recommend starting the review process now.
What can you do?
For new mortgage borrowers, speak with a broker who has access to whole of market to assist you find the best deal.
For existing mortgage borrowers, check your existing scheme. If you are on a variable or tracker rate or your fixed rate ends within the next six months, schedule a review with an independent broker as soon as possible.
The overall advice would be to act and review your options. Whilst some lenders have already increased product pricing there are still some fantastic mortgage rates available. The sooner, that you act and review, the more likely you are to be able to secure lower rate borrowing.
Are you in a fixed rate for longer than the next six months? If you are paying a higher-than-normal interest rate, it is still worth reviewing your options. MMPE can work with you to take account of factors such as, early repayment charges both your existing and potential new interest rates. Then review if it is worthwhile switching to a new deal. Equally, you may decide that it is worthwhile paying penalties and switching if it gains you a longer more preferential deal.
My Mortgage & Protection Experts are independent, whole of market mortgage brokers, who can assist with providing guidance and advice in securing you a mortgage. Act now and review your mortgage options, delaying a decision could lead to you paying more for your mortgage.
