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What will the interest rate rise mean for your mortgage?

Today, Thursday, 2nd August, the Bank of England have voted to raise official interest rates by 0.25 percentage points to 0.75%

The last rate rise was in November 2017, when rates rose from 0.25% to 0.5%.

Although this sounds low, roughly four million UK households on a standard variable or tracker rate mortgage, which rises and falls with the official rate, will see their monthly mortgage payments automatically go up by roughly £30 a month.

Today’s rate increase to 0.75% makes the base rate the highest it’s been since March 2009, when it was dropped following the financial crisis and recession.

Read on and find out how you can remortgage to future-proof your monthly payments from any further rate increases for years to come.

What a rate rise means for mortgages

A 0.25% increase sounds quite small, but when you apply it to mortgages, monthly payments start to look more expensive.

It’s particularly expensive if you are on your lender’s standard variable rate (SVR), or the rollover, or reversion rate, that you pay once your fixed rate term has expired.

For example, if you were on a 3.99% standard variable rate, your monthly payments on a 25-year £200,000 mortgage would be an extra £340 a year with a 0.25 percentage point rise. Remember – this happened last November – so if you’ve been on your SVR since then and, taking into account the rise of another 0.25 percentage points today, it will be costing you an additional £680 this year alone. That soon adds up!

If you don’t know whether you’re on an SVR you can find it on your latest mortgage statement or call your lender to confirm.

Isn’t a rate rise already accounted for?

Most lenders have already nudged up their rates in anticipation of today’s announcement. As Martin Lewis said in a recent article: “Less than a year ago the very cheapest two-year fixed [mortgage] was under 1%, the similar cheapest deal is now around 1.35%, and five-year deals are up a similar amount too.”

The good news is, that while lender’s prices have risen compared to a year ago, you can still get a two-year fixed that is very low in historical terms. Today, the average rate for a new mortgage is 2.09%, but two years ago it was 2.3%, five years ago it was 3.2% and in 2007 it was 6%.

With the base rate predicted to continue to go upwards, homeowners should act as soon as they are able, to lock in low monthly mortgage payments.

Aren’t I too late then?

No! Firstly, if you know you’re on your lender’s SVR then it makes sense to switch away as soon as possible as it is always more expensive than fixing.

If you’re coming to the end of your initial period in a couple of weeks and are looking to remortgage then you also aren’t too late to make savings. If more rate rises come, which economists predict they will, then lenders’ prices for new mortgage products will also move upwards. The key is to avoid going on to your lender’s SVR and fix a cheap deal as soon as you can. In this market, the longer you leave it, the more risk you run that prices will have continued to go up when you do come to remortgage off your SVR.

If you are already in the process of remortgaging with Habito, then just make sure we have all the necessary details to complete your application as soon as possible. If that means rummaging through files and folders to find employment documents and mortgage statements, now’s the time!

If you need more advice on what documents you’ll need to complete your remortgage, and where to find them, get in touch with one of our mortgage experts for some helpful advice. If you’re interested in reading more about how you can prepare yourself for the smoothest remortgage possible, have a look at our blog post detailing what documents you’ll need to make this happen.

If you’ve remortgaged recently to a fixed-rate deal, then don’t worry – your mortgage payments will stay the same for now, whatever decision the Bank makes.

Can I switch my fixed-rate mortgage early to get a better deal?

If you’re looking to remortgage but not for several months – then make sure you know exactly when your current deal expires and think about for how long you might want to fix it for to protect yourself in the future. In this market, generally speaking, the longer you can fix your rate for, the better. While a five-, seven- or ten-year fixed rate will mean higher monthly payments than a two-year deal, it will also guarantee protection from any further Bank of England rate rises until at least 2023.

With most mortgages you can get released early – but it’ll probably cost you a fair bit. The early repayment charge (ERC) that accompanies most fixed-rate mortgages can add up to thousands of pounds, so you need to do your sums carefully to work out whether cutting your losses and switching to a new longer-term fixed rate is worth it. Our expert advisers are always happy to take a look and tell you whether switching early makes sense or not. They can start helping you find your next mortgage up to four months before your existing deal finishes.

I’m new here, how can Habito help?

At Habito, we search 90 lenders and thousands of deals to find the right mortgage for you. We then manage your application from start to finish, doing all the heavy lifting for you. And best of all we’re completely free – so what are you waiting for? See if you could save by remortgaging today.

 

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