Rising Interest Rate – what should home owners do?

J Finance interest rate

Is the interest rate going up?

As the Bank of England hints that rates could be set to rise, what does this mean for anyone with a mortgage?

It’s been a decade since the last interest rate rise in the UK, so many newer home owners (and savers) may have never experienced any changes in their finances due to a move by the Bank of England to change the interest rate.

The market has been predicting a rise of around 0.25% from early 2018, although a recent Bank of England rate setting meeting has suggested that it could rise as early as November or December this year, thanks to higher than expected economic growth and inflation.

So what does this mean, and what should you be doing now to prepare yourself?

A change in the interest rate can greatly affect anyone with a mortgage if they are on a variable or tracker rate that goes up and down with changes in the Bank of England Base Rate.

For instance, let’s say you have a £200,000 mortgage and have 25 years left to pay. If you are on an interest rate of 4.6% (the average UK standard variable mortgage rate according to financial data provider Moneyfacts) you would pay another £28.72 a month on top of your £1,151.77 monthly payment, if the rate went up by 0.25%. If there were four interest rate rises of 0.25% (or a whole percentage point rise) over a year, your outgoings would be £117.10 more each month. Increases would be similar if you were starting from a lower rate too.

There is no need to panic, although now is the time to start thinking about fixing your mortgage. With an imminent interest rate rise looking likely, some mortgage providers have already started to raise their fixed rates, but there are plenty who have not, so it could be worthwhile reviewing your mortgage to avoid any unexpected or significant rises in your repayments, especially if you have a large mortgage.

It’s extremely worthwhile talking to an independent mortgage adviser, such as J Finance Ltd, who will be able to talk you through facts, figures and the best deals available to you. In light of the possibility of an interest rate rise.

Any rate rise is good news for savers though…

If you have savings, a rate rise could give a boost to your interest payments, but you’d probably need quite a lot to see any real difference – with the average instant access savings account offering only 0.14% in interest a year. It’s possible however, that banks may try to avoid passing on any benefits of a rate rise in order to increase their profit margins.

And finally, if you’re planning a holiday abroad, an interest rate rise could see the pound regain some of its strength, which would be a welcome treat for anyone heading overseas. However, it’s not going to make a huge difference, and it’s unlikely that the pound will be returning its 2016 level any time soon…

Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England. If you would like to discuss this subject or any other financial matter, without obligation, please contact us on 01635 521 300 or contact@jfinance.co.uk.

YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.