Earlier this month the Bank of England raised its base rate by 0.25%. That may not seem like much, but considering it was only at 0.5% anyway, it’s a relatively large jump. It now stands at 0.75%. This is still an incredibly low rate, but we understand that any increase can cause concern.
We spoke to Kelly McCabe, Managing Director of TMP – The Mortgage People, to find out exactly what the increase really means, and how it may affect potential homebuyers.
Does this mean that all lender interest rates will go up?
“An increase in the Bank of England base rate doesn’t automatically mean banks and building societies will increase their interest rates. If you have a fixed mortgage rate for instance, your payments won’t increase during the fixed term. However, at the end of your fixed rate if you do nothing it’s likely you’ll automatically be moved onto your lender’s Standard Variable Rate (or something similar) and it’s this rate which will often increase following a Bank of England rate hike.”
How will shared ownership mortgages be affected?
“Rising interest rates would mean that monthly payments increase. However, at current rates they would not go up by a huge amount, and interest rate rises should impact Shared Ownership homeowners less than those who buy properties outright on the open market. Many private tenants are also likely to be affected by the interest rate rise due to landlords increasing rent, possibly because their own mortgage payments have increased.”
Should we be concerned that interest rates could rise dramatically and we won’t be able to afford to stay living in our home?
“There is always that risk. No-one knows how quickly interest rates will rise, or how much they’ll increase by. However, a mortgage adviser could advise you on this to help you minimise the risk.”
Are we likely to see more rate increases over the coming months?
“I’d like to think not, but certainly over the next couple of years the Bank of England has to increase the bank rate to something more reasonable and sustainable for the country.”
Is now a good time to buy a home?
“Absolutely – mortgage interest rates are still incredibly low which means payments are low. However, we have to plan for more interest rate rises so if you’re thinking about buying a property, consider a longer-term fixed rate mortgage. If you can comfortably afford a property now, talk to your mortgage adviser about longer-term fixed deals to give you more certainty that your home will remain affordable.”
What should we look for in a mortgage?
“Our advice when taking a mortgage is to fix your payments. In the past, taking a tracker or variable rate mortgage was a common occurrence, but now our belief is that a fixed rate is the safest option.
A longer fixed rate might cost you a little more at the outset but could save you money when interest rates rise in the future. More importantly, the peace of mind a fixed rate can give you is priceless.”
So what does all of this mean?
In summary, the Bank of England bank rate has risen, which means that mortgage interest rates are also likely to rise and monthly payments may go up slightly. However, we must remember that interest rates are still incredibly low! Now is the ideal time to buy – because a fixed rate mortgage will lock you in at the current low interest rates, which could potentially save you money in the long run.
The fact that the bank rate has risen yet again, following a previous 0.25% increase in 2017, is an indicator that rates will continue to rise. So why wait? Get on the property ladder now with a shared ownership home and benefit from low interest rates!