The Bank of England has recently announced an increase in the base rate to 1% This is the fourth consecutive time that the Bank has increased the rate since December.
The announcement comes in an attempt to curb the rise in inflation which is currently at 7%, far greater than the 2% that it aims to achieve.
Low inflation suggests a well-balanced and stable economy, so with inflation on the up, this means that goods and services are becoming more expensive quicker and the purchasing power of your money is falling.
The interest rate change has an impact on the cost of your mortgage, especially if you are on a standard variable rate or tracker mortgage – and this proposes whether now is an opportune time to remortgage or whether you should be negotiating harder with your mortgage provider to fit the bill.
We hear from some leading industry experts in the UK to gain some further insight:
Tomer Aboody, director of property lender MT Finance, says:
“This rate rise was fully anticipated by the markets due to the need to manage soaring inflation.
It will help cap some excess spending by consumers, although many have been cutting back where they can in the face of rising bills and the wider cost of living.
Mortgage pricing is edging upwards, but many lenders up until this point have not passed on previous rate rises in full due to a highly competitive market.
If they want to attract business, they need to absorb some of the rate increases; the question is, how long will they be prepared to do this for.”
David Soffer of secured loan and mortgage price comparison, Proper Finance, commented:
“The change in base rate, whilst only small, will have an impact on those 1 million mortgage holders who are on the standard variable rate (SVR), increasing the average mortgage by an extra £504 per year.”
“This will similarly impact those on tracker mortgages, whereby their rates are in line with the Bank of England base rate. Our statistics show that the average homeowner on a tracker mortgage will pay an extra £25 per month, equal to £300 per year.”
Dan Kettle of asset and mortgage lender, Octagon Capital, responded:
“With rising inflation and the increase in the Bank of England’s base rate for the fourth time in a row, it would not be surprising if this trend continued.”
“Therefore, it is probably an opportune time to look at remortgaging to a fixed deal which protects you from these changes. The best remortgage deals tend to disappear quickly, especially if there is an ongoing trend, so it might be worth speaking to your existing mortgage provider or speaking to a mortgage broker sooner rather than later.”
“Above all, you want to consider any early exit fees from your existing mortgage and the potential costs to arrange a new one including the broker, arrangement and solicitor fees that come with it.”
David Beard, founder of leading UK price comparison, Lending Expert, concluded:
“For those homeowners who are on fixed mortgages, they may be able to ride the wave and enjoy better rates than those on other tracker or SVR rates. But if you are in this position, you may want to look at when your mortgage term is ending and whether it would be worth extending this or getting a remortgage sooner rather than later. Being put on the SVR rate of 4.7% is far from ideal, when you could be on just 2% or 3%.”