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Mortgage Rate Rise

First time buyers could be against the clock to get on the property ladder before the predicted rise in interest rates. We look at how this will potentially affect you, whatever your situation.

First time buyers could be against the clock to get on the property ladder before the predicted rise in interest rates. We look at how this will potentially affect you, whatever your situation.

However, an eventual rise in the interest rates is widely predicted. If you’re a first-time buyer, this is your cue to get moving and secure a great deal before the interest rates begin to creep up. But what if you’re already on the property ladder? How will the rise affect those on fixed rate, variable rate or an interest-only mortgage and what action should you be taking right now to reduce payments and secure a better mortgage deal going forward?

You’re looking to buy a new property

Whether you’re a first-time buyer, or building a property portfolio, right now is an excellent time to put a new mortgage in place. But don’t delay – this golden time of low interest rates isn’t expected to last. If you’re lucky enough to have a large deposit (of around 35%) you could enjoy rates as low as 2.5% for five years, and 1.2% for two years. As a first-time buyer, this is unlikely but now is still a good time to get your first mortgage offer down in writing.

You have a fixed rate mortgage

A huge 44% of homeowners have fixed rate mortgages and won’t be impacted by the predicted increase in interest rates. However, if your fixed rate mortgage deal is coming to an end, you may want to switch mortgages sooner rather than later to take advantage of the low interest rates before they begin to climb. Switching mortgages when you’re not moving home isn’t as complex as you might think and could save you thousands over the course of your loan. Early repayment charges are a concern but if you’ve only a few months left on your fixed rate, the timing could be perfect. Check your current mortgage’s terms and conditions.

You have a standard variable rate mortgage

Homeowners with standard variable rate mortgages, or tracker mortgages are likely to be affected by the impending interest rate rise. This group represents the largest proportion of homeowners. If, as is widely expected, the Bank of England’s base interest rate gradually rises, those with variable rate mortgages could be in for a shock. A homeowner with a £150,000 mortgage would see their payments rocket by around £230 a month if the base rate climbed by just 2.5%. One answer may be to bite the bullet, pay the earlier repayment fees and re-mortgage now on a fixed rate before the slow rise gets underway.

You have an interest-only mortgage

An interest-only mortgage means you only pay the interest on the loan and not the capital. That means payments are far lower than those on repayment mortgages. It also means that an interest rate rise would hit harder as a proportion of an interest-only mortgage holder’s monthly payment. Bit by bit, shouldering one rise after another over the course of months or years, interest-only mortgage payers may find themselves seriously out of pocket.

The Governor of the Bank of England, Mark Carney, has said he believes the base interest rate will rise incrementally and hit 2% in approximately three years. If his predictions are correct, then although the first few times the rate nudges up it will have little impact, over time some mortgage holders will notice a serious negative impact on their financial circumstances. That’s why now is the time to research, prepare and protect yourself.

As a leading provider of financial information, Norton Finance can give you the support and guidance you need, no matter what type of mortgage you’re paying.


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