Last week, the Bank of England announced that it will not be increasing interest rates in November this year and that they will remain at 0.1%; however, there is still potential for an increase before Christmas.
Interest rates have remained at this historic low since much earlier in this pandemic, but it looks like we’ll start seeing a modest rise soon enough. We will have to wait until December 16th to find out the extent of the increase, so if your mortgage is up for renewal, now might be a good time to start shopping around or contact your mortgage provider/broker.
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The Base Rate
For those not familiar with the Bank of England’s base rate; it is essentially the benchmark for the cost of borrowing money. Mortgage lenders (and credit companies) use the BoE base rate as a starting point upon which to structure their interest rates. Essentially, if the base rate rises, so will the cost of borrowing.
Rising Inflation
The cost of living in the UK has always been fairly high when you compare it to the rest of Europe. However, on the back of our leaving the EU, we have seen an energy cost increase, fuel crises, and increasing cost of groceries and everyday items, due to rising manufacturing costs.
This increase in the cost of living is having an impact on many household budgets. The Bank of England has set a target of halving inflation to 2% which will help to ease this impact on household budgets. In order to do this, they will have to increase their base rate.
Base Rates and Mortgages
Mortgage rates are at record lows at the moment and this is largely due to the BoE base rate being at its record low!
Approximately 80% of homeowners are on a fixed-rate mortgage deal, and for those people, it will be business as usual. The attraction of a fixed rate is that you are able to tie into a set rate for two or more years, during which you can rest assured that your repayments won’t change until your term runs its course and you have to remortgage.
A standard variable rate is what you’ll be transferred on to if/when your fixed term finishes. If you are currently paying a variable rate then your repayments will almost certainly increase in line with the base rate increase plus whatever your provider increases their rate by.
However, we do not expect to see a hike in the rate, historically banks have increased their rates gradually to reduce any kind of panic and soften the blow of an increase in mortgage payments.
What’s happening now?
Although the BoE has assured us that there will be no increase in the base rate this month (Nov-21), they have not mentioned anything about an increase before Christmas. This has stimulated many high street lenders into increasing their interest rates on some of their mortgage products in anticipation of a pre-Christmas rate rise.
While this is something to take note of, you don’t need to panic. There are still two and five-year fixed-rate deals available which are around the 1% mark, which is still extremely low compared to rates of just 10 years ago.
What to do.
If you are currently on a variable rate or tracker mortgage, you may be able to find a cheaper alternative in the form of a fixed-rate product; check your agreement for any early redemption fees and contact your provider.
If you are currently on a fixed rate which is coming to an end in the next 6 months, you should speak to your lender, you might be able to secure a new product at a current rate with a view to completing when your current deal is finished.
While conducting your own research and educating yourself in this field, it is recommended that you speak to a finance professional or mortgage broker who will be able to guide you through your options and potentially have access to mortgage products that outperform those which are accessible to the general public.
Get in Touch
If you are thinking of moving to the area or buying a property to rent, make sure you take a look at our amazing catalogue of properties for sale in Virginia Water and the surrounding areas.
If you’d like to speak to someone about properties to let in Virginia Water, a member of our expert team would be happy to help. You can call us on 01344 843000 or email us. You can also follow us on Facebook, Twitter, Instagram, and LinkedIn.
