The Bank of England has once again increased interest rates by 50 basis points from 4.5% to 5% in an attempt to tackle high inflation. The base rate hasn’t been as high as 5% since April 2008.
This is the 13th consecutive rise in interest rates. Previous rate rises haven’t yet brought inflation down anywhere close to the target rate of just 2%. Inflation has been falling slowly but in May it was still high at 7.9%.
Here we explain what the base rate increase could mean for you.
What does the latest base rate rise mean for mortgage borrowers?
If you’re on a variable rate or a tracker rate mortgage your repayments will increase with immediate effect. Your lender will contact you to let you know how much your new repayments will be.
If you are on a fixed rate mortgage your rate and repayments will remain the same until your fixed term comes to an end.
If your fixed rate is coming to an end within the next few months your new repayments will undoubtedly be higher than what you are currently paying as mortgage rates have escalated.
“The best way to manage your mortgage is to make sure you know when your fixed rate ends and review your options at least 6 months in advance.” recommends Gemma Brown, Mortgage Adviser at SN Financial, “It’s also good practice to regularly review your monthly budget. Are there any places you can reduce spending such as unused subscriptions or moving to a new energy provider?”
What are your remortgage options?
If you’re due to remortgage soon and you are worried about whether you can afford a higher monthly repayment, there are some potential options to consider, although these options are not suitable for everyone.
- You could potentially increase your mortgage term to spread repayments over a longer period which could bring the monthly repayment down. However, whilst you would be paying less in the short term, you would end up repaying more in interest over the long term.
- If you have sufficient cash savings, you could consider repaying a chunk of your mortgage debt to reduce the outstanding balance and therefore reduce your monthly repayments.
- If you think your property has increased in value it may be worth getting a valuation done before you remortgage. A higher valuation could mean that your loan-to-value (LTV) has dropped down to the next bracket. The lower your LTV band, the lower the interest rate is likely to be on your remortgage.
At SN Financial we have the knowledge and expertise to carefully assess each client’s individual circumstances and recommend the most suitable course of action.
If you are due to remortgage within the next 6 months, get in touch as soon as possible to discuss your options.