In early August The Bank of England raised its base rate from 0.5% to 0.75% and for only the second time in a decade. This may seem like a considerable rise and as expected people have questions about how this will affect their mortgages, savings and property. Let us try and answer some of them for you here…
How will it affect me?
Things aren’t going to dramatically change overnight for most people; if you have a large mortgage then it is likely that it is on a fixed rate, if you fall into this category then the change will have no impact on you. Nowadays the percentage of people with variable rate mortgages is just 35% compared to 70% in 2001.
But I have a variable rate mortgage… how much more will it cost?
If you are on a tracker mortgage which matches any rise in base rate then for a repayment mortgage of £100,000 an extra 0.25% would add £12 to your monthly repayments, and if your mortgage was £200,000 then would add £25 per month to your repayments and so forth.
Banks are quick to enforce rate rises on mortgages but are slower to raise savings rates. The average interest rate on an easy access account for high street providers is currently 0.23%. It is expected that this will rise to between 0.3-0.4%, the banks use the rate rise to widen their net interest margin and increase their profits.
Are there going to be more interest rate rises in the near future?
It has been suggested by the governor of The Bank of England that we shouldn’t be seeing the next rate rise until 2019. However, people should be prepared as currently, the average person is spending more than they are earning which means they are either getting into debt or cutting into their savings. The bank of England is aware of this which is why they are trying to avoid increasing the rates even more, presently.
Should I fix my mortgage now to beat future rate rises?
There is a new trend amongst high street lenders of 10 year fixed term mortgages that are only slightly higher than the 2-5 year fixed rates that are usually taken out by households. Considering the rise in the base rate and the threat of further rises in the near future then it is likely that these 10 year fixed plans are going to become increasingly popular.
What does this mean for the property market?
In the south the market is more stagnant compared the Midlands and north at the moment. This is likely to continue; Brexit uncertainty, stamp duty rise, and higher tax on buy-to-let properties has already been affecting the market so the extra 0.25% rise is unlikely to add much more pressure to the market. Economists are also forecasting property prices to rise between 2-3% annually.
Get in touch with Laybourne to review your existing property portfolio funding.
by Steve George