A recent survey conducted by the MAS revealed that 18% of all home owners with mortgages didn’t realise that an increase in the bank of England interest rate might mean an increase in their mortgage repayments. With the recent 0.25% increase in the Bank of England (BoE) Interest rate coupled with further increases expected, what could it mean for you and how can you manage your payments?
The current 0.25% increase in the interest rate on an average £200K mortgage means a £25/ month increase in your repayments, but a series of interest rate increases are possibly on the cards! This means that a potential 2% increase in the BoE interest rate could mean a £215/ month increase in your repayments! Can you afford that?
Types of Mortgage
When, and if, your mortgage repayments are affected by an interest rate change will depend on what type of mortgage you have and/or when your current deal ends.
- If you have a variable rate tracker mortgage, linked to the BoE base rate you are likely to see an immediate impact on your mortgage repayments.
- Those on standard variable rate mortgage will probably see an increase in their rate in line with any interest rate rise. How much is decided by your lender, so this isn’t guaranteed. If you are unsure, check your mortgage terms and conditions in your original mortgage offer document.
- People with fixed rate mortgages are likely to be affected once they reach the end of their current deal. An interest rate rise will make re-mortgaging more expensive.
Here are some tips on what you can do to manage the rise coming down the line:
1. Find out what mortgage you’re on
2. Work out how an interest rate rise will affect you and determine if you can afford it
3. Work out what you can afford, create a budget and cut back on non-essential spend
4. Build up your credit score to get access to better deals when your current mortgage deal comes to an end
5. Make sure you’re on the best deal by talking to a mortgage advisor or IFA
6. Overpay your mortgage if you can