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Interest rate rises – what’s the effect on your mortgage?

At the time of writing The Bank of England has again announced that the base rate will remain unchanged at 0.5%. It’s an historic low that’s now into its 6th year, but the signs are that steady rises are just around the corner. So what does that mean if you’re planning to move home in North Fylde?

We’ve got used to low interest rates. If you’re a saver, that won’t have been a pleasant experience. But if you’ve been looking for a mortgage over the past few years, you’ve been able to take advantage of some (relatively) spectacular deals.

Those deals stem from the banking collapse of 2008. Back then, and it seems almost impossible to believe now, interest rates were a buoyant 5.5%. Within a year they’d dropped to 0.5% and have flatlined ever since.

But this month, for the first time in a long time, the 9-man Monetary Policy Committee wasn’t unanimous in maintaining the status quo. One member recommended a small rise, and all the indications – from slowly improving pay to record levels of employment – suggest that view will be in the majority by early next year. The expectation is that interest rates will, in a fairly low key, steady way, be on their way back up within the next few months.

What does that mean for mortgage holders? Well first the good news, if you’re on a fixed rate mortgage the answer is absolutely nothing will change. You’ll stay on your current rate until the end of the deal, no matter how high interest rates climb. The downside will come when you next try to negotiate another fixed rate, as you’ll likely find it’s higher than the one you’re already on.

Trackers and capped mortgages will increase, but only to the levels you’ve already agreed. It’s those homeowners or buyers on the standard variable rate (SVR) who will feel the greatest effect.

Interest rate rises – an illustration

Example 1

You owe £100,000 on your home, with around 15 years still to pay. Even at a fairly uncompetitive SVR of 3.5%, a 0.25% interest rate rise will add less than £13 to your monthly bill.

Example 2

You owe £150,000 on your home, again with 15 years to pay on an SVR of 3.5%. A 0.25% interest rate rise will add around £20 to your monthly bill.

What’s likely?

Of course, it’s not a 0.25% rise we need to be concerned about. It’s the likelihood that, even with a slow and steady approach, rates will continue to rise beyond that 0.25%.

But there’s no need to panic just yet. As the BBC’s Robert Peston reports, the Bank Rate is expected to be 1% by the end of 2016, up 0.5% from today’s rate. An unwelcome dent in most people’s pockets of around £30-£40 each month, but unlikely to derail most plans to buy or sell your home in Fylde.

But if you want to take advantage of those record low mortgage rates, or fix your rate before things start to change, best get a move on. If you need a good mortgage broker, contact us and we’ll point you in the right direction.

Ready to move? You can browse our properties for sale in North Fylde here.

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