The Bank of England recently agreed to increase the base rate from 0.25% to 0.5% due to rising inflation. On Thursday 17th March 2022, it was announced that a further 0.25% increase in its base rate from 0.50% to 0.75% was to take place.
The Bank of England announced this after the Monetary Policy Committee (MPC) meeting and was voted by a tight majority of 5-4 to increase the base rate by 0.25 percentage points. The MPC made the decision in response to CPI inflation rising to 5.4%, a figure well above the Bank’s target of 2%. The MPC meets eight times a year to set the base rate, and the results of the next meeting will be published on the 17th of March 2022 hence the now agreed rise in base rate from 0.5% to 0.75%.
So what does this mean for the average Worcester homeowner or property buyer? Putting it bluntly, this change will affect some of our mortgages and savings accounts. With mortgage owners, home buyers and money savers being affected by the Bank of England raising the rate to 0.75%, as the base rate affects mortgages and the amount of interest paid on savings, loans, etc. This has now risen three times since December 2021.
What are interest rates?
When the Bank of England lends money to commercial banks, the amount of interest they must pay back is determined by the base rate. A higher base rate means lenders are charged more – and these higher costs are usually passed on to consumers in the form of interest rate rises. As an example, a higher base rate could mean mortgages get more expensive and that savings accounts pay more interest on your money; this is not always the case, but it is a good example. Interest is what is paid for borrowing money, and what banks pay for saving money with them. Interest rates are calculated as a percentage of the amount borrowed or saved over a year. For example, if the amount of money saved at the bank is £1,000 with a 1% interest rate, the total savings would amount to £1,010 a year later.How do interest rates affect house prices?
Interest rates can have a significant impact on house prices. Higher interest rates increase the cost of borrowing, which may prevent buyers from entering the housing market., whereas lower rates make borrowing cheaper and can stimulate more market activity.How can interest rates rises affect your mortgage?
As 74% of all current mortgages are fixed, nothing will change for most mortgage holders. So, if your rate is fixed, the interest rates rises will not affect you. There will not be any change until the end of the fixed period. However, it is worth checking whether your mortgage is due to expire soon in order to secure a new deal.For those who have a loan or a mortgage that charges variable interest rates, the cost of your repayments might go up, so this is worth checking with your provider. In some cases it may be possible to move providers/products to ensure you have the best deal for you. The rate will rise depending on the lender, so it is advisable be better to check it sooner rather than later and decide whether or not a new fixed rate mortgage would be better for you.
Tracker mortgages as the name suggests, track the base rate, so your mortgage costs will go up as the base rates increase and decrease as it lowers. Depending on your personal circumstances, this might be a good time to see if you can switch to a fixed-rate deal.
What should you be doing?
If you have a fixed rate mortgage, your rate will not change for a set amount of time. But if your fixed mortgage product is due to expire in the next six months, it could be a good time to start your due diligence and understand if there are better deals on the market.If you have a Standard Variable Rate or 'discount' mortgage, your mortgage will most likely rise by 0.75% points. If you're on a tracker, this will almost certainly rise in synchrony with the base rate. With rates expected to rise over the next two years in an attempt to return inflation to its target of 2%, now is an excellent time to consider switching to a fixed rate mortgage.
If you are interested in understanding how a change in interest rates could impact you, Hollywell Homes highly recommend Emma Knowles CeMAP of HLC Mortgages. HLC have no ties to a limited panel of lenders, so unlike many other companies, Emma can hunt for the best mortgage products from the whole market on your behalf.
Whether you are a first time buyer at the start of your journey, an existing homeowner looking for the best mortgage products available in the current market or a seasoned investor, get in touch today to find out what opportunities are available to you. Call her today on 01905 948848 or email info@hollywellhomes.co.uk.
HLC Mortgages is a trading style of HL Financial Consultants Ltd is an appointed representative of Quilter Financial Services Ltd and Quilter Mortgage Planning Limited which are authorised and regulated by the Financial Conduct Authority.
