What does the recent base rate rise mean for homeowners?
It has been a decade since the last base rate rise, a situation almost unprecedented, for many of us.
The Bank of England announcement, earlier this month and widely signposted, of a 0.25% rise in the base rate to 0.5%, may seem small, but, what does it mean for folks with mortgages, and those looking to purchase a home with a mortgage?
What will the base rate rise mean for my mortgage?
On average, homeowners with a £175,000 variable mortgage will see their payments go up by about £22-£25 a month.
Those with a smaller mortgage, say of £100,000 will see their monthly payments increase less (about £12 a month).
You can compare the rate of your current mortgage rate, using ASPC’s mortgage calculator, by adding 0.25% to your current interest rate.
Interest only mortgages will differ in the amounts of increase.
What will the base rate rise mean if I am on a fixed mortgage?
For the remainder of the period during which your rate is fixed you will not have to pay any extra. Fixed period mortgages generally range from two to 5 year terms, so you will be able to work out how long you have before the remainder of your fixed term will apply.
When your current fixed rate term runs out, you will be moved onto a new tariff – generally the lender’s general variable mortgage rate - and will need to pay the increase. There can be further mortgage offers available as you near the end of a fixed rate term, so it can, occasionally, make fiscal sense to change mortgages although charges and fees can render such a move pointless.
Interestingly, research from the Resolution Foundation has found that only about 11% of homeowners are likely to be affected in the short term by the base rate change (down from 19% a decade ago at the last base rate rise) as more and more people have turned to fixed rate mortgages.
What will the base rate rise mean if I am looking to buy or sell a house?
The base rate rise was not a massive shock – it had been forecast for some time and most mortgage advisors will have warned those thinking of buying. It is unlikely, therefore, to lead to any significant change in housing markets.
The effect on prospective purchasers should be minimal, at present. Further increases, “may be necessary” over the next 18 months to 2 years, according to some sources.