On 21 September 2022, the Bank of England base rate increased to 2.25%. This is good news for those with savings accounts as it means their interest rates are also likely to increase, paying more interest on their money. For those with mortgages however, this news might not be so welcome.
The cost of living crisis is a topic that we hear a lot about when we’re visiting properties and providing valuations; and this rate change will likely adversely impact many in our communities. One area you can likely make a saving is on your mortgage.
As estate agents, it’s our duty of care to enquire in to our sellers financial situations and it never ceases to surprise us how many homeowners are unsure what mortgage product/interest rate they have. We’ve met many homeowners who have previously signed up to fixed-term mortgage deals and when the fixed-term has lapsed, they’ve forgotten all about revising their product and getting a better deal.
Does this sound like you?
We’re all very good at reviewing our insurances, broadband and tv packages, and mobile deals; but when it comes to our largest asset it seems we forget the importance of having our finances reviewed.
What is the Bank of England (BoE) base rate?
The Bank of England base rate is usually voted on by the MPC eight times a year.
If the MPC feels that the economy would benefit from higher borrowing and spending by businesses and consumers, it lowers the base rate.
On the other hand, if spending levels are increasing too quickly and inflation is in danger of soaring, the MPC may raise the base rate.
How will it affect my mortgage?
When a fixed-term mortgage deal ends, borrowers are moved to their lenders standard variable rate (SVR). If you’re on your lender’s SVR, then a rate increase could significantly bump up your costs. While your lender might not increase its SVR by the full amount, it’s still highly likely that your payments will increase.
With average SVRs above 5%, it’s important to remortgage to another deal before the end of your fixed term.
Now is the best time to review your products.
Be like Mr & Mrs S
We asked one of our highly recommended and respected Independent Mortgage Adviser’s from Your Mortgage Centre to provide us with an example of someone they’ve recently helped out of a standard variable rate mortgage.
“Mr & Mrs S had been paying their lenders standard variable rate for several years. Their mortgage had been affordable, so they had not considered the fact that fixing in to a new deal could save them money. They’ve received several letters from their current lender already this year stating that their mortgage payments were to increase following the Bank of England’s base rate rise, so contacted us to explore their options.
Their lenders standard variable rate had increased to 5.24% and they were concerned that this could keep increasing over time. They felt that in the current economic climate, having the certainty of knowing their mortgage payments over the next few years was most important to them. We managed to find them a fixed rate mortgage which has reduced their monthly mortgage payments by £133 a month and more importantly, provided them with the peace of mind that their mortgage payments will remain the same for the next 5 years.”
Be like Mr & Mrs S. Know what mortgage product you’re on and be sure to regularly have it reviewed by an Independent Adviser to ensure you’re not paying above the odds.