Property Drop Issue 16
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34 ADVICE<br />
How to prepare for an<br />
interest rate rise<br />
Interest rate changes can have an impact on mortgages, The Bank of England sets the bank rate (or ‘base rate’)<br />
for the UK, which is currently 0.5%. This, in turn, can influence the cost of borrowing or the rate<br />
of interest charged by financial institutions, such as banks and building societies.<br />
Interest rates in the UK are set by the Monitory Policy Committee (MPC) of the<br />
Bank of England (BoE). This is the interest rate at which banks borrow from the<br />
BoE.<br />
What happens when interest rates rise?<br />
Banks are not obliged to follow Bank of England interest rate decisions, but they<br />
can influence the cost of borrowing, or how much interest you earn on savings.<br />
Interest rate rises and mortgages<br />
When, and if, your mortgage repayments are affected by an interest rate change<br />
will depend on the type of mortgage deal you have and/or when your current deal<br />
ends.<br />
If you have a variable rate tracker mortgage, linked to the BoE base rate you are<br />
likely to see an immediate impact on your mortgage repayments if there is an interest<br />
rate rise.<br />
Those on standard variable rate mortgage will probably see an increase in their rate<br />
in line with any interest rate rise. These rate decisions are made by the lender but will<br />
be influenced by the Bank of Englands ratesetters.<br />
People with fixed rate mortgages are likely to be affected once they reach the end<br />
of their current deal. An interest rate rise could make re-mortgaging more expensive.<br />
The table shows how much more you’d have to pay on a £200,000 mortgage<br />
(where the current interest rate is 2.5% and monthly repayments are £897) if interest<br />
rates increase.<br />
5. Build up your credit score<br />
It might seem like a strange time to be focusing on this, You can improve your<br />
credit score by making sure all credit payments are made on time and that you are on<br />
the electoral register at your current address. This will help you get a better deal when<br />
your deal comes to an end or you remortgage.<br />
6. Make sure you’re on the best deal<br />
If you’re current deal is coming to an end you should definitely be looking at<br />
switching to make sure you’re on the best rate. But it can also be worth looking if<br />
you’ve got some time left on your current deal. You might have to pay some fees to<br />
change mortgage so be aware. Speak to your bank or mortgage broker and they will be<br />
able to provide with the best options.<br />
7. Overpay your mortgage<br />
It might be a little while before an interest rate rise hits you in the pocket, so take<br />
advantage of the low rate you’re currently enjoying and pay extra if you are able.<br />
There are limits on how much you can overpay and there might also be charges, so<br />
you should check with your mortgage provider first.<br />
Please feel free to call Blestium Financial Services for FREE, no abligation advice<br />
and guidance.<br />
0.25%<br />
0.5%<br />
0.75%<br />
1%<br />
2%<br />
Monthly payment<br />
Monthly increase<br />
£922.62<br />
£25.39<br />
£948.42<br />
£51.19<br />
£974.63<br />
£77.40<br />
£1,001.25<br />
£104.02<br />
£1,111.66<br />
£214.43<br />
mortgages, life insurance and finance specialists<br />
The following tips may help<br />
1. Find out what mortgage you’re on<br />
How you will be affected by an interest rate rise depends on what mortgage you’re<br />
on and when your deal comes to an end. If you don’t know, check your paperwork<br />
with your broker or with your mortgage provider to find out.<br />
2. Work out how an interest rate rise will affect you<br />
Now you know what mortgage you’re on you are in a better position to find out<br />
how this will affect your finances and when you’re likely to see this change.<br />
3. Work out what you can afford<br />
If you’re mortgage repayments are likely to go up, work out if you can afford the<br />
increase. It may be worth completing a monthly budget plan and see if there are any<br />
areas you might be able to cut back. Start building up a savings buffer so you will be<br />
able to afford them when they hit.<br />
4. If your worried about how to afford this<br />
You don’t have to be in debt to seek help, a debt adviser or financial adviser can<br />
help you budget and assess your income/expenditure early before you get into any<br />
financial difficulty.<br />
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