Yesterday's revelation that inflation has hit a five-year high has got everyone talking about the possibility of a base rate rise, with some thinking it could happen as soon as next month. This means it's time to get prepared, and sorting out your mortgage should be at the top of the list.
Mortgage rates have been falling for years, hitting fresh lows on a regular basis, and borrowers have been reaping the rewards. As a result of that, many could have become accustomed to record low repayments; yet if base rate rises, mortgage rates could follow – there are already signs of interest rates edging up, with lenders raising their mortgage rates in anticipation of a base rate rise – so it's time to get your borrowing commitments in order.
Research from TSB shows that some 2.6 million people have become homeowners since base rate last rose in July 2007, which means there's a whole generation of borrowers who have never experienced an increase. Indeed, 68% of survey respondents said they didn't know how a base rate rise will affect them, and 66% are worried about the possibility of mortgage rates rising, highlighting the need to prepare.
Hopefully, many of those borrowers will currently be on a fixed rate mortgage deal, which means their repayments won't be impacted. However, for those with tracker or variable rate mortgages, or those approaching the end of a fixed rate term, any increase to base rate could lead to a swift rise in repayments.
It may not be a huge increase, but it'll be an increase nonetheless; TSB's calculations show that a base rate rise of 0.25% could lead to a typical variable rate mortgage repayment rising by £13 a month, based on a £100,000 mortgage balance, or by £26 a month for those with a £200,000 mortgage (based on a 20-year mortgage term and a typical variable rate rising from 3.74% to 3.99%).
You may want to start factoring these kinds of increased costs into your monthly budget to see how you could absorb them. It needn't take much – cutting out the daily shop-bought coffees or sandwiches, for example, or sacrificing the weekly takeaway could be all it takes to make up the shortfall.
Take a look at your outgoings and see where cutbacks can be made. TSB found that 67% of respondents would buy cheaper groceries if they had to cut back, while 64% would eat out less and 43% would bring a packed lunch to work, with any one of these solutions going a long way to helping you boost your bank balance and cover any rise in repayments.
However, to really make a difference to your monthly outgoings, why not remortgage? Switching to a fixed mortgage rate can guarantee your repayments for the long term, regardless of what happens to base rate in the near future, and you could save hundreds of pounds in the process. Indeed, TSB found that a typical borrower with a £100,000 mortgage on a standard variable rate could save £119 per month, or £2,859 over two years, just by switching to a better deal, so why not see if you can do the same?
Above all, don't panic – even if base rate rises, it won't be a significant increase, which means your repayments shouldn't rise to any extent. Having said that, you'll still want to start comparing mortgage rates to stand the best possible chance of nabbing the best deal, as fixed rates aren't going to stay at record lows for long.
"We don't know when the Bank of England will change the base rate, but we do know that preparing early is the first step in helping Britain's homeowners to get ready for a rate rise," said Ian Ramsden, director of Mortgages at TSB. "There's no need to panic and no one is suggesting sudden large increases in the base rate; but just a little planning now can make a big difference in the future."
Sam: 23rd Oct 2017 10:37:00
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