Within minutes of the Bank of England increasing the bank rate from the record low of 0.25% up to 0.5%, many high street lenders jumped to increase their rates on both savings and mortgages.
Millions of homeowners are currently sitting on variable rate mortgages and may face higher monthly repayments. How much or how little the interest rate rise affects your household will vary depending on your individual circumstances, the terms of the mortgage, how long it has been taken out for and what type of mortgage it is.
Those on a fixed rate mortgage won’t have to act until their deal ends however, it’s advisable to keep a note of when this will be as, when the fixed rate comes to an end, you will be automatically switched over to a SVR mortgage, which particularly now rates have risen, may result in more expensive monthly repayments.
Romans’ Director of Mortgage Services, Greg May advises: “Homeowners sitting on a SVR may be hit the hardest now the Bank of England rate has increased. Anyone who is on a variable rate should speak to a mortgage advisor to ensure they are on the right rate for their circumstances now the changes have come into play.”
The table below shows the potential impact this 0.25% bank rate increase could have on a tracker and SVR mortgage. It also gives a good indication as to how much you could potentially save by coming off your SVR and moving onto a discounted mortgage. Using the table below, for every £100,000 borrowed, this 1.49% extra interest equates to around £900 per year - illustrating the potential savings which could be made by shopping around for a different mortgage product.
Total borrowing over 25 years
Whilst many households may be at risk of paying off a higher rate of interest unnecessarily, it is unlikely this change will cause a financial crisis. In recent years, mortgage lenders have been required to stress test applicants and ensure that borrowers can afford to repay their mortgage if interest rates rise by around 5 – 7%.
However, it’s not all bad news – whilst you may end up paying more on your mortgage, you are likely to see an increase in the interest made on your savings accounts. Whether or not this off-sets the rise in mortgage repayments will of course depend on your individual circumstances.
If you are unsure about how the interest rate rise will affect you, get in touch with Romans mortgage experts on 0118 3219 536 – we can advise on the right product for your circumstance.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There will be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
*Monthly repayments calculated using Money Supermarket, the above figures are subject to fees and admin costs and are for illustrative purposes only.
**These rates are not taken from a specific product or lender.