How does the BOE base rate affect my mortgage?
If you're on a variable-rate mortgage, a base rate change - or sometimes even speculation that one could be on the horizon - is likely to have an effect on your repayments.
Homeowners on fixed-rate deals, however, won't feel the effects until their fixed term ends and they're moved across to their lender's standard variable rate (SVR).
But this is why you would remortgage, to stop your mortgage moving to an SVR rate of 5%+
Tracker mortgages
If you have a tracker mortgage, a change in the base rate will have a significant effect on your monthly payments.
These mortgages 'track' the Bank of England base rate, plus a set margin - for example, the base rate plus 1%. Like fixed-rate mortgages, these deals tend to last for a set number of years before reverting to a lender's SVR.
This means that if the base rate rises by 0.5 percentage points, your repayments will too. In times where the interest rate remains unchanged - for example, between 2009 and 2016 - your interest may stay the same for an extended period.
But in uncertain economic times, your payments may vary as the rate changes, so it's worth considering whether rate changes are expected in the near future.
SVR mortgages
If you're on your lender's SVR - perhaps because your fixed-term deal has ended - then a rate increase could significantly bump up your costs.
While your lender might not increase its SVR by the full amount, it's still highly likely that your payments will increase. With average SVRs above 5%, it's important to remortgage to another deal before the end of your fixed term.
How the rate might affect you will depend on what mortgage you're on and when your current deal comes to an end. If you don't know, check your paperwork or get in touch with a broker to discuss your existing mortgage arrangement.
The good news is that if your mortgage is on a fixed rate, your monthly repayments will be unaffected by the rate rise for the period it is fixed for. If your fixed product is due to expire within the next 6m, it may be worth a conversation sooner, rather than later so you can financially prepare for what the increase may be.
If you have a variable rate tracker mortgage that is linked to the Bank of England base rate, you are likely to see an immediate impact on the amount you repay. Those on a Standard Variable Rate (SVR) could see an increase which is decided by the lender. If you are unsure, it is worth checking your mortgage terms and conditions in your mortgage offer document.
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Depending on your circumstances, there can be measures you can take. The most apparent course of action could be to switch to a fixed-rate mortgage, or fixing the mortgage rate for a longer period of time to protect from further interest rate rises. However, it is worth noting that fixing for a longer period of time may restrict you from other deals in the future (should the rate decrease) and there may be early repayment charges to switch before your rate ends. Whilst this option could work for some, it may not work for others. We will look at your individual needs and circumstances, and at your available options and provide our advice on which is the most suitable for you.
For readers who are still on a variable rate, or are coming to the end of their fixed rate period. Please contact us to see how we can help. We have access to the whole of market, so we can review the market for the cheapest product suitable for your circumstances and requirements