On 2nd August 2018, the Bank of England announced that they will be raising the base rate by 0.25%, from 0.50% to 0.75% – the highest level since March 2009. The nine members of the Monetary Policy Committee unanimously voted to increase the base rate.
It is estimated that this rate rise will impact three and a half million residential mortgages that are on a tracker or variable rate.
This largely depends on the type of mortgage you have, we have explored the various outcomes below.
Fixed rate mortgage: If you have fixed your mortgage, usually for 2, 3, 5 or 10 years, then your monthly mortgage repayments cannot increase during this time, unless you borrow more through your mortgage lender. If your fixed rate is due to expire in the next few months, then you may notice that the rates available to you will have increased.
The best thing you can do to secure the lowest rate is contact our whole of market Mortgage Brokers a few months before your fixed rate is due to expire and we will search the market to find you the most competitively priced product available.
Variable rate or tracker mortgage: If you have a mortgage that has a variable rate or tracks the base rate, then the increase in base rate may immediately impact your monthly repayments. Your lender will likely have contacted you to make you aware of your new interest rate if it has changed.
Although we don’t expect the base rate to increase again in the next 6 months, industry experts predict that it is likely that the base rate will rise again during the next 12 months, although it has been promised that this will be “limited and gradual”.
According to a recent BBC article:
If you would like to fix your monthly mortgage repayments to provide certainty on the amount the lender can charge you each month, then speak to our team of Mortgage Brokers and we will advise on the best fixed rate mortgage option available to you.
It is thought another base rate rise won’t come until early 2019. The Monetary Policy Committee is hesitant to make any hasty decisions until there is a clearer picture about the impact that Brexit will have on the UK economy.
Any rise to base rate will be gradual over the next few years, with an expected peak of between 2-3%, far lower than the pre-financial crash base rate of 5%.
One of the biggest developments in the mortgage market over the past few years has been the increase in longer-term fixed rate products, usually five or ten year fixes, instead of the standard two or three year fixes taken out by most households. A five or ten-year fix rate mortgage guarantees that your monthly mortgage repayment cannot change during this time and therefore protects you against the changes to base rate which are likely to take place in the next few years.
Ten year fixed rates are now available through many high street lenders and are only priced marginally higher than fixed mortgages for shorter terms. Locking in a long-term rate now could be beneficial if you would like to maintain a level of certainty in the future.
Contact our Mortgage Brokers on 01702 533 400 to find out the what type of mortgage product would be best suited to your needs or arrange a call back.