The interest rate base rate has recently risen from 0.5% to 0.75%, and other rises may well be on the cards in future. While this might not seem a great deal, it can be significant when you have a product like a variable rate mortgage to consider or are considering one in the near future.
In reality, a rise of 0.25% will add around £12 per month to every £100,000 borrowed, or around £144 per year. That doesn’t seem drastic, but considering that most mortgages and prospective loans will be more than this, it can soon become more significant. Consider if you are just starting on a 25-year loan of £250,000 – a perfectly acceptable sum in the south East and many other urban areas of the UK – then you could be looking at an increase of around £360 per year.
Many first-time buyers are likely to be financially pinched already, and may have other long-term commitments such as student loans to consider, so this will be something that will be difficult to shrug off, particularly if it is the first of many such possible rises. However, in reality, most first-time buyers will be in a fixed-rate deal, so will be spared the impact of these rises for a few years.
The big question is, with bases rates historically low for so long, whether this will be a gradual ramp up of the base figure. It is possible but the conciliatory tone from Mark Carney, the Bank of England governor, suggests the next rate rise might not be until at least 2019 at the earliest and then possibly some way into it. Almost no source in the City expects a return to the 5% base rates that was common before the 2008 financial crash. Most suggest a “new normal” base rate of no more than 2% to 3% at most and even then, that’s unlikely to peak for some time to come, possibly several years.
So what effect will this rise have on the UK’s property market? Few would disagree that, despite a fairly robust program of home building, the market is actually in the doldrums as many new builds struggle to meet their asking price, remaining available but unsold for increasing amounts of time. The properties are there, but is seems that the buyers are not there and many appear to be biding their time, waiting to see what happens. However, a small rise like this is unlikely to be a deciding factor in a prospective home-buyers thinking, and those who want to buy will probably still do so.
So how can you defend yourself against these rises? Certainly, with the Bank of England finally taking the plunge and hiking interest rates after such as long period of static, it may be the time to settle into a good fixed rate deal and see what the future holds form a stronger vantage point. There are still many excellent fixed-rate mortgage deals which you could remortgage onto.
If you would like to explore your remortgage options then please do get in touch with us and we can provide you with a fee free appraisal of the best options available to you. Having access to the whole of market we are confident we will be able to find you a deal that is most suited to your circumstance. Call us on 01908 465100 to speak to one of our advisors.