Last week the Bank of England changed their base mortgage rate from 0.5% to 0.75%. Having changed at the end of last year, the adjustment comes in the wake of a stronger economic climate in the country and is predicted to not be the last change in coming years.
But what impact will this have on your situation? Whether you’re saving to get on the property ladder, paying off a mortgage or just wondering how this will affect the property market as a whole, read on to find out more and to get some tips from the experts on things to consider now the interest rate has changed.
For those saving to buy a home
The change in interest rates should see a rise in interest rates on savings accounts, which should benefit many saving for a property. Have a shop around the banks to see which is offering the best interest rates on saving accounts to get the most from your money.
If you’re looking to buy a property, most people look to get a five year fixed rate mortgage, especially in London, where you’re likely to own your first property for longer. Some banks, such as HSBC, are allowing buyers to take advantage of a 10 year fixed rate mortgage at a rate that’s only slightly higher than a five year one, currently sitting at 2.49%. This is a great option to stop you being hit by variable rate changes in the future, but be careful if you’re considering this option; you can only overpay by a certain amount a year otherwise there are fees and if you try to leave a fixed rate mortgage before your time is up, there are also associated fees.
Top tip: We’ve asked the expert mortgage brokers at John Charcol to add some useful tips for those in these situations. Nick Morrey, Mortgage Technical Manager from there says, “For those who do not want to be tied in to a lender for the next decade there are many competitive 5 year fixed rates. There are also a few unusual products currently available, for example TSB have a 10 year fixed rate with only a 5 year penalty period which could be an acceptable ‘halfway house’ for some people.”
For those who have a mortgage
If you’re in a fixed rate mortgage, you won’t be affected right now, but if it’s almost up or if you’re on a variable rate, the change will most affect you. The monthly addition may not seem to be a significant figure but over time this will add quite a bit onto your outgoings.
Investigate re-mortgaging to make sure you’re getting the best deal on offer for you right now. Approach your lenders several months before the end of your fixed term to see if they can offer you a better deal and then shop around to make sure you get the most competitive deal. If the value of your property has risen, you could get some competitive offers.
In some cases, it may be good to be in a SVR – for example if you wish to make overpayments, as the charges aren’t usually applicable in a SVR. Also, if the amount you have left is relatively low, there may be no point incurring the fees of changing it over.
Top tip: Nick says, “Approaching a mortgage broker can be a really good idea. Since 2016 many lenders now allow brokers access to their product transfer range. This means your broker can look at what your current lender will offer you to stay with them AND what is available on the open market. This could well save you both time and money.”
Landlords have been hit with a variety of new regulations in the last year, with tax changes and additional regulations meaning you may need to reconsider your position and the number of properties you have to offer.
Although 0.25% seems like a small increase, the expenditure which comes with a buy-to-let mortgages coupled with an increase in interest rates again will be difficult for landlords who have many properties or bought only recently. You may look to not sign long-term tenancies or to rise rental prices to cover the higher outgoings.
With many landlords having rushed to purchase properties ahead of the stamp duty surcharge in April 2016, their two year fixed rate mortgage may just have ended, leaving them on a SVR which won’t be doing them any favours. It may be worth looking to get onto a new fixed rate mortgage as soon as possible to avoid the hit of higher repayment fees.
Now, more than ever, it's important to be investing in the right areas so use our Yield Map to make sure you're looking for property where the best rental yields are.
Top tip: Nick says “The money markets seem to have been expecting the rate rise as swap rates have not changed much in the days post increase. Therefore, the advice is to look for deals now and not wait. The chance of a base rate reduction is extremely slim so either fixed rates will stay as they are or edge upwards – especially if the Bank of England look to effect another increase as has been mooted.”
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