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How the interest rate rise will affect your mortgage

Posted 06/11/2017

Last week, the Bank of England raised the base rate for the first time in a decade. So, how does that impact on mortgages? 

Seven of the nine members on the Monetary Policy (MPC) at the Bank of England voted in favour of increasing the rate and that has seen it move from 0.25% to 0.5%. This has been likely since the rate of inflation peaked at 3% in September - a five-year high. Here’s what it means for the three mortgage types: 

Standard Variable Rate (SVR)

If you are on an SVR, or are signing up for one, then the impact will be seen immediately with higher repayments starting from December. It is likely that they will be raised the full amount by all lenders but it’s not a time to panic.

Obviously, with this type of mortgage, there is no tie-in so you can remortgage without incurring a penalty and the average SVR borrower has a mortgage balance of £91,000 so generally have smaller loans to worry about.

Base Rate Tracker

As the name suggests, these follow and rate movements usually with a fixed margin (usually 1% or 2%). This means the rate will rise by 0.25%, most likely to start in December. Many of these are open to remortgaging penalty-free but they are generally some of the cheapest offers on the market anyway.

Fixed Rate Mortgage

As we know, the beauty of the fixed rate is that nothing will happen to your mortgage repayment as it stays the same regardless for the term that you’ve agreed. As it’s going up, you’re already in a strong position and if you’ve agreed a remortgage then this should be honoured (although this doesn’t work for first-time buyers as most agreements in principal do not guarantee the rate).

Andrew Montlake of Coreco, a mortgage brokers in London, said:

Providing your remortgage application has been submitted, the rate is effectively booked with a lender this far in advance.

So even if interest rates rise again during this time, the rate agreed should be honoured by the lender.

Posted 12 days ago

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