The Bank of England’s monetary policy committee is set to meet next week, for the first time in 2018. The last time the committee met in November 2017, the base rate was increased by 0.25pc to 0.5pc – the first increase in a decade. There are concerns that the same will happen again following the upcoming meeting.
The previous rate increase was rather low, but experts are warning that two or three further increases are possible during the next 12 months. This would greatly affect homeowners, as savings and mortgage rates would rise thus making monthly repayments much more expensive and difficult to meet.
Homeowners have become accustomed to low mortgage rates but raising the interest rates would be almost certain to result in lenders increasing their mortgage rates. Essentially, any further increases to the base rate are almost guaranteed to be passed on by the lenders. Borrowers on variable rate mortgages should prepare to be faced with rising costs. Although it isn’t definite that lenders will increase their rates however, in many cases they will.
For borrowers who take out large loans is the £400 increase what it will cost for the consumer extra per year after a 0.25% rate rise for example. The largest increase could be faced by Yorkshire Building Society’s customers. If the lender raises its rates from 4.99pc to 5.24pc, borrowers could face paying an extra £527 per year.
Due to the risk of rising interest rates, borrowers are reminded of the importance of fixed-rate deals. Borrowers can lock in their rate, usually at a level lower than the standard variable rate for as long as ten years in some cases. Until the fixed-rate period ends, borrowers are protected from future rate increases. However, borrowers must bear in mind that if the base rate falls, then they could end up paying more than they must.
If borrowers are currently paying the standard variable rate, they should be reviewing their mortgage options to know if they are getting the best deal. Those considering a fixed-rate should also be aware that the cost of a fixed-rate mortgage could rise ahead of any base rate, so looking as soon as possible is recommended.