Seven tips for managing an interest rate rise on your mortgage
Call us for expert help when dealing with changes in interest rates.
Adapted from an article on www.moneyadviceservice.org.uk
Interest rates can have an impact on a wide range of areas including mortgages, borrowing, pensions and savings. The Bank of England sets the bank rate (or ‘base rate’) for the UK, which as of 2ND August 2018 is 0.75%. This, in turn, can influence the cost of borrowing or the rate of interest charged when financial institutions, such as banks, lend money.
What does an interest rate rise mean?
Interest rates in the UK are set by the Monitory Policy Committee (MPC) of the Bank of England (BoE). This is the interest rate at which banks borrow from the BoE. When you hear on the news that interest rates have gone up, it means the MPC has decided to increase the base rate.
What happens when interest rates rise?
Banks and Lenders are not obliged to follow Bank of England interest rate decisions, but they can influence the cost of borrowing, or how much interest you earn on savings.
Impact of interest rates rise on mortgages
When, and if, your mortgage repayments are affected by an interest rate change will depend on what type of mortgage you have and/or when your current deal ends.
If you have a variable rate tracker mortgage, linked to the BoE base rate you are likely to see an immediate impact on your mortgage repayments if there is an interest rate rise. Those on standard variable rate mortgage will probably see an increase in their rate in line with any interest rate rise. How much is decided by your lender, so this isn’t guaranteed. If you are unsure, check your mortgage terms and conditions in your original mortgage offer document. People with fixed rate mortgages are likely to be affected once they reach the end of their current deal. An interest rate rise could make re-mortgaging more expensive.
Have a financial plan in place
It’s a good idea to have a financial plan in place to deal with any potential interest rate changes. Current forecasts indicate that changes are likely to be small, but steady, so while a 0.25% rate rise might not set alarm bells ringing, several consecutive raises could have a significant impact.
Seven tips for managing an interest rate rise on your mortgage
1. Find out what mortgage you’re on
How you will be affected by an interest rate rise depends on what mortgage you’re on and when your deal comes to an end. If you don’t know, check your paperwork or with your mortgage provider to find out.
2. Work out how an interest rate rise will affect you
Now you know what mortgage you’re on you are in a better position to find out how this will affect your finances and when you’re likely to see this change.
3. Work out what you can afford
If your mortgage repayments are likely to go up, work out if you can afford the increase. Create a budget and see if there are any areas you might be able to cut back. If the increases are likely to be in the future, then start building up a savings buffer so you will be able to afford them when they hit.
4. If you’re worried about how to afford this
You don’t have to be in debt to seek help. A debt adviser can help you budget and assess your income/expenditure early before you get into any financial difficulty.
5. Build up your credit score
It might seem like a strange time to be focusing on this, but by working to improve your credit score, you will be able to get a better deal when your deal comes to an end or you remortgage.
6. Make sure you’re on the best deal
If you’re current deal is coming to an end you should definitely be looking switching to make sure you’re on the best rate. But it can also be worth looking if you’ve got some time left on your current deal. You might have to pay some fees, but if the savings are worth it you should still switch.
7. Overpay your mortgage
It might be a little while before an interest rate rise hits you in the pocket, so take advantage of the low rate you’re currently enjoying and pay extra. There are limits on how much you can overpay and there might also be charges, so you should check with your mortgage provider first. Read our page on paying off your mortgage early.
Why Choose Bristol, Bath or Exeter Mortgages Online to be your Mortgage Broker?
Here at Bristol, Bath and Exeter Mortgages Online we have a team of expert, very experienced and independent Mortgage Advisers. We will not only get you the best and most suitable mortgage but will look at what each mortgage option means for you including the impact of any possible future interest rate increases.
For more information or to book your FREE CONSULTATION please visit one of our websites or contact us
www.bristolmortgagesonline.com 0117 325 1511
www.bathmortgagesonline.com 01275 584 888
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