Will they hit borrowers hard?
There is much speculation around the Bank of England (BoE) base rate rising at the turn of the 2016. Several lenders have already started to every so slightly notch up their fixed rate mortgages, so naturally borrowers are starting to consider just how hard a rate rise would affect them financially.
Experts now though reassure that a rate rise won’t have quite the same effect as in the past, with the mortgage market being more complex and driven by different factors.
What factors affect mortgage rates?
The level at which a lender sets their own interest rate is determined largely by two factors.
- Firstly, the cost in which they can access funds themselves in order to “sell” onto borrowers. This could be from access to savings deposits or the cost they can borrow funds from other banks, known as the “swap rate”.
- Secondly, the competition against other lenders drives mortgage rates and has been one reason rates have remained so low in recent years.
The rate rise expectations
The BoE rate is expected to rise from the historical all time low of 0.5% to 0.75%. It’s a modest increase and further increases are expected also to be gradual according to a speech made by Mr Carney on behalf of the Bank of England, in July.
The “swap rates” have, in fact, not yet reacted to a potential rate increase and lenders continue to offer low fixed rate deals across the board, spurred by the competition amongst lenders and demand in the market, particularly for remortgages.
Calculate your mortgage increase
The best way to know the increase in your mortgage commitment is to work with a financial adviser. In the first instance, use one of our online calculators to give you an idea of the potential monthly instalment using your own personal circumstances.
Mortgage cost calculator – click here
For example, a £200,000 repayment mortgage on a 2.14% rate over 25 years would cost circa £861 per month. Given a 0.6% increase the repayment would be circa £921 on a 2.74% rate.
Many property owners are ensuring they benefit long term from the low rates by securing a fixed rate deal now, before any potential increase.