• Maxim Cohen

Mortgage Rates: November 2017 Update

It may have been predicted by many experts for a period of time but when the Bank of England increased their base rate from 0.25% to 0.50%[1], a lot of people were left unhappy. There is a good level of debate as to whether this is a move that will benefit the economy, with many people suggesting that this is a sensible step to stifle any possibility of inflation. However, the majority of people are more presently concerned with how this will impact on their finances and the most obvious way that people will be affected relates to mortgage rates.

First of all, mortgage holders who currently hold a fixed rate mortgage are probably feeling quite happy with themselves. This is because the key benefit of holding a fixed rate mortgage lies in the fact that when interest rates rise, you don’t end up paying any more money each month on your mortgage. The clue lies in the “fixed rate” element of the title, and any fixed rate mortgage holder knows that their monthly payments have been left unaffected by this change.

Fixed rate mortgage holders are doing okay at this point in time

In the longer term, it is vital that fixed rate mortgage holders attempt to find a suitable mortgage to switch to when their current deal expires. If a mortgage holder doesn’t arrange a new mortgage, they will be moved to their lenders standard variable rate mortgage, and this can be costly, seeing them pay a lot more each month.

The people who have been most affected by the increase in interest rates are people with a variable rate mortgage. The Nationwide base mortgage rate has increased to 2.5% [2]and for someone who holds a mortgage of £175,000, their monthly payments will rise by £22. This comes with the monthly payment fee moving from £763 per month to £785 per month.

A rise of £22 may not seem like a lot to many people but it will be a notable rise for some mortgage holders and households. This is why it is essential that each mortgage holders consider the recent changes and views their own budget with respect to what they can or cannot afford.

There will likely be more interest rate increases to come

Another aspect to bear in mind is the fact that there is a suggestion that there will be further interest rate increases from the Bank of England before 2020. It may be that some households have been able to manage the recent increase but further increases could place them under a greater level of financial pressure, so be sure to look forward when you review your budget.

In a study carried out by The Resolution Foundation[3], it has been found that 11% of households in the country will be affected by the recent rise in interest rates. When interest rates last rose, in 2007, a similar study found that 19% of UK households would be affected. The two key reasons for the smaller impact this time around falls on the fact that fewer people own homes in the UK at this point in time and it is believed that more mortgage holders hold a fixed rate mortgage these days.

Anyone who has been affected by the increase in interest rates or who wants to discuss their mortgage options with a specialist should get in touch with us and we will be happy to meet.

[1] http://www.bankofengland.co.uk/boeapps/iadb/Repo.asp

[2] https://www.nationwide.co.uk/about/media-centre-and-specialist-areas/media-centre/press-releases/archive/2017/10/30-bank-rate-increase

[3] http://www.londonlovesbusiness.com/property/residential-property/how-the-interest-rate-rise-will-affect-your-mortgage/19008.article

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