Interest rates rise – what it means for mortgages

Bank of England Interest Rates Increase to 0.25%.

Bank of England December’s rate increase came as a surprise to many borrowers. It was the first increase in three years in response to calls to tackle surging inflation.

The rise from 0.1% to 0.25% might not seem like a huge increase but will affect borrowers who have mortgages on the Standard Variable Rate and Tracker Rates.

It took lenders a couple of weeks to start increasing their rates but most have already done so or informed the borrowers of the inevitable change. The increase of the interest rates was mainly in line with the rate increase of 0.15% and will most likely come into effect from the 1st of February 2021. This, on the mortgage of £200,000 translates to an increase in the region of £300 per year or £25 per month.

With the inflation at 5.1%, many people will feel the increase in a cost of living in general and the additional cost of mortgage payments might become problematic for some.

It is estimated that around 46% (Experian 2021) of mortgages are on Standard Variable Rate so it might be worthwhile to look to remortgage now at the lower rate.

The change in the Bank of England Base Rate will not affect those on the fixed rate. These have been rising slowly over the last several weeks in the anticipation of the increase in the Base Rate but will most likely still stay at a competitive level.

First-time buyers will be affected the most with lower affordability due to higher interest rates and high property prices. They will be looking for other options of funding the purchase, therefore the government schemes, like equity loans will be in higher demand.

Our expert mortgage adviser can guide you and find the best deal for you to lower your monthly mortgage payments.

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