When the Bank of England announced earlier this month that the base rate would rise from 0.5% to 0.75%, the first thought in many people’s minds was: ‘How will this affect my mortgage?’
It’s true that if you’re on a variable rate mortgage, monthly repayments are bound to rise. For those with a £150,000 mortgage over a 25-year term, payments are likely to go up by around £250 a year, depending on your current rate.
However, if you have savings in a bank or building society, you should receive more interest, which should help to offset the rise (although - as many commentators have pointed out - banks are often slower to put up their interest rates for savers than for borrowers).
The picture may seem gloomy, but as a long-established local estate agent with decades of experience between us, we are able to see the bigger picture. With positive thinking and some savvy shopping around, it’s still possible to secure excellent mortgage deals that could help fund your dream home.
What is the base rate and why does it matter?
The base rate is the Bank of England’s official borrowing rate, in other words, the rate it charges other banks and lenders when they borrow money. This influences mortgage and savings rates, as banks and building societies pass on the costs of their own borrowing.
Before the financial crash of 2008, the base rate averaged at around the 5% mark. In the late 1980s and early 1990s it was far higher – often into double figures, and peaking at 14.88% in October 1989.
Here at Roger Coupe, many of our staff remember those days well. Historically, interest rates are still extremely low, and while house prices have risen, the cost of borrowing means that mortgages continue to be affordable.
To fix or not to fix?
This month’s interest rate rise is likely to be the first of several gradual increases over the coming months and years. With this in mind, it’s worth considering fixed rate deals, whereby your mortgage repayments are fixed at an agreed rate for a set term, so you know exactly what your costs will be every month. Most people fix for two or five years, but there are plenty of ten-year deals around, and a handful of lenders will even fix a mortgage rate for 25 years.
Fixed rates start as low as 1.4%. for two years. Compare this to one of the earliest ever fixed rate offerings, introduced in 1989 by Halifax at 12.75%!
If you have a high deposit (often in the form of equity in the property you are selling) you’ll be able to take advantage of the best fixed rate deals.
However, while fixed rates offer locked-in monthly payments, there’s no guarantee that they will save you money in the long term. If the Bank of England base rate – and in turn the mortgage companies’ variable rate – remains low or even falls, you won’t see the benefit.
The other factor to remember is that fixed rate mortgages nearly always come with an early repayment charge; this means if you want to leave the deal before the end of the term, you will have to pay an exit fee.
The clear message is that it pays to shop around in the mortgage market. Here at Roger Coupe, we work alongside a reputable fee-free mortgage advisor from L&C who will be able to give you a range of options to suit your circumstances.
Keen to climb the property ladder?
‘We need more space!’ is a phrase we hear time and again from growing families. If you’ve been toying with the idea of moving, now could be the ideal time to find a bigger property, while locking in to an affordable mortgage rate you can depend on.
We are marketing many beautiful family houses in Cranleigh and the surrounding villages, including this superb four-bedroom Cranleigh home on the market for £695,000 Click Here
For more information on this and other properties, and to register your details with us, please don’t hesitate to give us a ring on 01483 268555, drop us an email or call into our office on Cranleigh High Street.