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The Bank of England has increased its base rate from 0.25% to 0.5%, the first rate rise in 10 years – here’s how the rise will affect the property market, according to the experts.
What Does Today’s Interest Rate Rise Mean For Your Mortgage?
Most people’s mortgage deals are either fixed-rate or variable. A fixed rate deal is for a set period, whereas with a variable rate deal, the interest rate can move at the discretion of their lender.
If you have been on the same mortgage deal for quite a few years now, you’re most likely on a variable rate deal. This means that unfortunately, your rate will increase with today’s base rate rise.
Robert Nichols, CEO, Portico London estate agents, says: “Those on variable rate mortgages will see a small increase in their monthly mortgage payments. For example, for the average mortgage in Britain of £175,000, an increase of 0.25% would increase monthly payments by about £22 a month.”
But it’s not all bad news. Andrew Thriepland, Mortgage & Insurance Adviser at Capricorn Financial, states that, “Over the last few years, around 70% of people that have taken out mortgages have done so on a fixed rate basis. These customers will not be instantly affected by the base rate rise from the historical low of 0.25%.”
But if you’re on a fixed rate mortgage, that doesn’t mean you can just sit back and relax. Robert Nichols adds that it’s certainly worthwhile getting your finances in order now:
“If your fixed term is soon to run out and you will be looking to get a new fixed-rate deal, the quicker you act the better rate you will secure. Rates are going to continue to rise over the next five years – so I’d advise locking in a low, fixed rate now.”
Deals Are Still Close To The Lowest-Ever Levels
If you’re hoping to get on the property ladder, it will come as welcome news that there are still some fantastic products on the market.
“Though big lenders such as Barclays, NatWest and Halifax scrapped or increased some of their lowest mortgages ahead of today’s expected rate rise, others have reduced their rates, so the mortgage market remains very competitive.
Mortgage rates remain historically low. Rates can vary from a 2 year tracker at 0.74% + the Bank’s base rate with the cheapest 2 year fix at 1.24%.” Jonathan Rothbart, Mortgage & Insurance Adviser at Capricorn Financial.
Rate Rises Won’t Deter Hopeful Homeowners
Mark Lawrinson, Portico’s Regional Director does not believe that today’s interest rate rise will deter hopeful buyers:
“In spite of interest rate rises, we know that a huge number of hopeful home owners are still determined to get on the property ladder in London.
London house prices have stabilised, and even dropped in certain boroughs, which is a great pull for first-time buyers. Plus – from new ISAs and Help to Buy, to buying with friends and shared ownership, there are lots of options available to make getting on the ladder that little bit easier.”
Can Landlords Mitigate The Interest Rate Hike?
Landlords are already seeing their profits decrease as a result of recent tax changes and changing legislation, and today’s interest rate increase will simply add on more costs.
Mark Lawrinson says landlords can mitigate the hit by cutting their interest costs:
“Buy-to-let mortgage interest rates have dropped dramatically in recent years, so deals currently on the market will be a lot better than products arranged a few years ago. It’s sensible therefore to shop around and remortgage. That being said, landlords will now have to consider the new PRA rules.
With large increases in property prices in London over the last five years, another tip is to get your rental property re-valued. This will make your lender recalculate your LTV, and a lower LTV means a better interest rate and a larger choice of lenders.”
Click on the Instant Valuation tool below to find out your property’s current value for sales, lettings or Airbnb.