How will it affect me?
The direct impact on most people is minimal. Most people with large mortgages are on fixed rates, so the increase has zero impact. The proportion of borrowers with variable mortgages – which move up and down in price as the base rate changes – has fallen to only 35% compared with 70% in 2001.
ere are some tips to help keep your mortgage on track and what to do if you find yourself struggling to make your repayments.
- Negotiate a better mortgage interest rate
- Consider switching lenders
- Think about fixing your interest rate
- Increase your mortgage payments
- Get help if you’re struggling with your mortgage
I have a variable rate mortgage. How much more will it cost?
If you are on a tracker mortgage that matches any rise in the base rate, then an extra 0.25% adds £12 a month to a £100,000 repayment mortgage and £25 on a £200,000 loan. For the 400,000 households on Nationwide’s base mortgage rate, their monthly bill will rise from £449 to £461 (on a loan size of £100,000) and from £897 to £922 on a £200,000 loan.
The Fed influences prices
The Fed’s actions have an indirect impact on the prices you pay at the grocery store, gas pump and other retail outlets.
That’s because the cost and availability of money affect people’s willingness to pay for goods and services. When money is cheap and plentiful, there’s more demand and prices tend to rise.
“When the economy’s doing really well and the labour market is good and the unemployment rate is falling, that’s when you have concerns about employers hiring and bidding up wages and inflation rising,” says Gus Gaucher, chief economist with The PNC Financial Services Group.
See what other lenders are offering
See what loans are available from other lenders. A comparison website will give you an idea of the lowest interest rates on offer, but usually won’t cover all products available in the market. You may need to do your own research to find out more.
Work out what features of your current loan you want to keep, and compare the interest rates on similar loans. For example, does your loan have an offset account or redraw facility? If you find a cheaper loan elsewhere that has the features you need, call your current lender and ask them to match their competitor’s rate.
Use the mortgage calculator to find out how much your repayments could be with different interest rates.
Should I fix my mortgage for the long term to beat future rate rises?
One of the striking new developments in the mortgage market is the sudden availability of 10-year fixes at interest rates that are only marginally above the two- or five-year fixes taken out by most households. HSBC, for example, is allowing borrowers to lock in for 10 years at only 2.49% and Coventry building society at only 2.39%. Given the rising interest rate environment, longer-term fixes are likely to be much more popular this year.
Will the value of the pound rise and give me more holiday money?
Sadly not. Even though the rate rise has been widely anticipated, sterling remains stuck at around €1.12, marginally down on this time last summer. Unless there is a breakthrough on the Br exit negotiations, expect the pound to remain under pressure.