Brian Murphy, Head of Lending at Mortgage Advice Bureau (MAB), comments:
“As the decision to raise the Bank of England base rate today demonstrates, it would seem that current economic indicators have provided members of the Monetary Policy Committee sufficient evidence to reduce monetary easing to the UK economy.
The increase in the bank base rate seen this afternoon will have little impact on many new borrowers who’ve probably opted for a fixed rate product, which has been the case for the majority of those taking out new mortgages for quite some time. However existing borrowers whose mortgages are directly linked to the bank base rate will see a minor increase in monthly repayments.
For example, for those with a tracker mortgage linked directly to the BOE base rate, for every £50,000 of borrowing on a 20 year term mortgage, the interest rate change today would increase their payments by £6 per month* According to the Bank of England, 43% of homeowners are currently on variable or tracker mortgages, which opens up the possibility for millions of households to see an increase in their monthly expenditure in the lead up to the festive season, as it’s likely that lenders will apply the increase to the next mortgage payment, impacting the penultimate pay packet before Christmas.
Over the last decade many new borrowers have entered the market and have never experienced an interest rate rise, with the last having taken place in May 2007. As a result, there is perhaps been a level of apathy amongst some regarding the real possibility of a pending increase. The reality is that rates have been on the floor for a long time and, as evidenced today, are not going to get any lower. Today’s increase may be the start of a slow and gradual rise in interest rates to more ‘normal’ levels and those who’ve been sat on their lenders’ Standard Variable Rate may benefit from considering a remortgage. The sooner consumers act, the more likely they will be to secure a rate close to the lowest ever levels. For most people a remortgage is a fairly straightforward process and certainly not something to be scared of. Likewise, for those nearing the end of their current fixed rate mortgage deal or who are considering new borrowing, it may pay to contact their broker or lender to start the process sooner rather than later in order to secure a competitive deal.”
*Indicative figure, calculations based on £50,000 borrowed over a 20 year term, with mortgage interest rates changing from 2% to 2.25%.