For the first time in over ten years, the Bank of England has elected to raise interest rates from 0.25% to 0.5%. The Bank of England is also predicting that the rate may rise again over the next three years.
Many homeowners will likely be feeling nervous about the cost of their mortgage at the moment. We asked Clare Farrell from Northfield Wealth, our recommended firm of financial advisors, to provide us with her thoughts on the increase:
The Bank of England have increased interest rates by 0.25% to 0.5%. This is the first increase rate rise in 10 years but before we all panic we must remember that this is still a very low-interest rate. Mortgages may rise in cost for some borrowers but savers will get slightly better returns.
In August 2016 we saw a shock move by the Monetary Policy Committee (MPC) when they recommended a cut interest rates from 0.5% to 0.25% so this new rate rise only takes us back to where we were in 2016.
It will impact those on variable rate mortgages, but they will be no worse off than they were between March 2009 and July 2016. They have been paying the lowest rates in history for the last 15 months so this rise really isn’t a shock.
The impact may also be felt by those applying for a new mortgage or remortgage as lenders increase some of their fixed rate offerings; if your application was submitted before the lender’s products changed, you should be safe, but if the product wasn’t secured by an application the lender may have introduced new, slightly higher rates in reaction to the rate rise. If in doubt, check with your lender.
What does the future hold? There is a lot of noise in the City of a further rate rise, possibly two in the next year taking rates to 1%, but as with all ‘noise’, it may be just that. The MPC also stated that they are not in any hurry to raise rates anytime soon, conflicting the views of the City. The truth is we do not know the answer but rates have been increased this time in an attempt to stop us spending too much, to make us a little more cautious at a time of year when spending can be at its highest.
- First of all, do not panic!
This is not a huge rate hike and will not be the difference between whether or not you can afford that dream home. Many lenders take into consideration whether or not you could afford your mortgage if rates rise when assessing your affordability. Also, your adviser should show you the cost of your mortgage at an increased rate on your illustrations.
- Secondly, get advice from an independent adviser.
Not all lenders have increased their fixed products but most have. Now that products have changed, it is more important than ever that you shop around – chances are the rate that is being offered to you by your bank is not the best rate on the market. Paying to use an adviser can often save you more money than the fee you pay them, as well as saving you time and stress with the mortgage application.
- Lastly, do not believe everything you read in the papers.
Doom and gloom headlines sell papers, or these days get likes/views. Take advice from an adviser, not a headline.
If you would like a free, no-obligation conversation with one of our mortgage advisers please call 01455 886328 or speak to a member of staff at Brian Holt who will arrange for someone to call you.