Do you know your current mortgage rate? Is it a fixed or variable rate?
If your answer is ‘I’m not sure’ to either of these questions, then you may not know how a rise in the Bank of England Bank Rate (also known as the ‘Base Rate’) might affect you.
If you are a mortgage borrower, there are five key questions you need to ask at the moment:
- When will interest rates rise?
- How quickly will they go up?
- Where will they peak?
- Have I got a fixed rate?
- If I have got a fixed rate, when will it end?
Ross Walker, senior UK economist at the Royal Bank of Scotland, expects the first rise to materialise in February 2015 and to climb steadily to 2.5 per cent by the end of 2017.
Mr Walker calculates that – taking into account income growth, house prices and mortgage borrowing – rises of just 1.5 per cent (from 0.5 per cent to 2 per cent) would raise households’ mortgage costs to above long-run averages.
With the average mortgage just above £131,000, a 1.5 per cent rise would increase mortgage interest payments by over £100 a month for a repayment mortgage and £160 a month on an interest only mortgage. These are significant amounts for most people.
And yet 42 per cent of UK mortgage borrowers do not know their current mortgage rate, according to new research by communications campaigner ‘Keep Me Posted’. When asked how a rise in the Bank Rate would affect them, a third believed that a rise of 1% would not be affordable.
What can you do?
There has never been a more important time to take the advice of an independent mortgage advisor, who will be able to assess your position and, if appropriate, recommend the best way of protecting yourself against future rate rises. Of course, if you do not need to do anything at the moment, an independent mortgage advisor will tell you that too. We’ll help you answer those five key questions above and put your mind at rest.
Your home may be repossessed if you do not keep up repayments on your mortgage.