The Bank of England (BoE) has kept the interest rates at 0.1% for November, still, a rise is expected to happen before Christmas.
Since the start of the pandemic, the interest rates in England have stayed at the historic low of 0.1%, however, the Bank of England has already indicated that slight rises are expected. The next decision will be taken on 16th December this year.
Base Rate Of The Bank Of England And Its Effect On Inflation
The base rate set by the Bank of England (BoE) is a criterion for the cost of borrowing money. It is of vital importance for you as a homeowner because credit card companies, mortgage lenders, and loan providers calculate the rates they charge based on it. The cost of borrowing will rise as the base rate rises. As inflation affects everything from energy bills to the weekly shop, it certainly exerts a squeeze on household budgets. BoE has targeted to bring inflation down by 2% to relieve the pressure. To achieve this, an increase in interest rates is required.
Increasing Interest Rates And Its Effect On Mortgage
Depending on what sort of mortgage you have, an increase in interest rates will have an impact on your monthly mortgage payments.
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Effect on Fixed-Rate Deal
If you are among the 80% of borrowers who have opted for a set rate for two or more years in a fixed-rate deal, you have good news! Your monthly payments won’t be affected by the increase in interest rates, at least until you plan to re-mortgage.
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Effect on Variable or Tracker Mortgage
If you are among the 20% of homeowners with a tracker or variable mortgage, your monthly mortgage payments will inevitably go up as the interest rates increase because the interest rate paid on tracker mortgages is calculated by adding a fixed percentage to the BoE base rate.
Truth is, all this speculation about the rise in interest rates has already started to impact mortgages.
Many mortgage lenders and loan providers, in anticipation of a hike in interest rates before or after Christmas, have already raised their prices. But don’t worry, this increase in interest rates is likely to be enforced slowly, rising 0.25% at a time to ease the blow.
Things You Can Do Before Interest Rates Increase
If you’re on a variable or tracker mortgage, you could look around if you can find an inexpensive deal with a fixed mortgage. This might require you to pay an early redemption fee first, and that might nullify the benefits of swapping instantly. You should consult a competent mortgage advisor to discuss your unique circumstances and explore the best option for yourself.
If your fixed-rate deal is about to end in the coming 6 months, it’s wise to start the process of finding another good deal because this can be a lengthy process. Many banks allow applying for current deals a couple of months before your mortgage expires. Also, keep in mind, you will be able to secure a better mortgage deal if you have paid off a substantial amount of money already. Interest rates for those at 60% Loan-to-Value (LTV) are lower as compared to 95% LTV.
