For the past ten years, interest rates in the UK have been at historic lows. Thanks to the measures taken by the Bank of England following the crash of 2008, homeowners have enjoyed affordable mortgage repayments. However, things are beginning to change. In August, the Bank of England raised interest rates for just the second time in a decade upping the rate from 0.5% to 0.75%.
Although this may not seem like a huge increase, it will have repercussions across the housing market and will be felt by homeowners everywhere. If you have a mortgage, or are thinking of buying a property in the coming months, understanding exactly what the base rate rise means for you is essential if you’re going to secure an affordable mortgage.
Why has the Bank of England raised the base rate?
The main reason the Bank of England has raised the base interest rate is that it believes the UK economy is on the up. As This is Money says “The rise comes with confidence in the economy rebounding after a blip in the first three months and estimates that wages will improve in the coming months.”
The base rate and mortgages
Whenever the Bank of England puts up its base rate, lenders around the country follow suit, raising the interest rates on their mortgages and other loans. Although banks are generally very slow to increase the rates on savings accounts, borrowers will often find their repayments increase just weeks after the interest rate announcement. Most lenders will increase interest rates by the 0.25%. However, there are some that will put their products up by even more.
What does it mean for your mortgage?
If you’re currently on a fixed rate mortgage, the Bank of England base rate increase won’t have an impact on your repayments. This is because you made an agreement with your lender to pay a set interest rate during the fixed term of your mortgage. However, once your fixed term expires, you may well find that remortgaging is more expensive than you anticipated.
If you’re on a variable rate or tracker mortgage, you’re likely to feel the impact of the interest rate rise almost instantly. Banks often put their rates up straight after a rate rise, so you’re likely to see more money leaving your bank with your next monthly repayment. Your bank will have to inform you of any rate rise, so make sure you keep your eyes peeled for correspondence and check you have enough money in your account to cover the increased payments.
Find out more about securing a mortgage and remortgaging a property by taking a look around our site, or getting in touch with a member of our expert team.
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Written by: Editorial Team