This month, the Bank of England’s (BoE) base interest rate was held at 0.5% once again.
While this wasn’t exactly a surprise, it still came as good news to homeowners repaying mortgages as it meant that monthly payments were unlikely to change.
As analysts now expect that the base rate will remain at 0.5% well into 2016, mortgage holders are unlikely to have to worry about increasing payments any time soon. However, if you’ve got a mortgage, it’s still a good idea to make sure you’ll be ready when the time for a rate rise finally comes.
When will they rise?
The answer to this is that no one really knows! With the news that the base rate would remain at 0.5% for an 80th month, some economists were speculating that an interest rate rise was unlikely for some months to come, possibly until later in 2016. One reason for this is that the economy has been growing slower than expected – not just in the UK but in the rest of the world as well.
However, other analysts are predicting that a rate rise could happen sooner, around May 2016. Back in July, BoE governor Mark Carney suggested that a rise in the base rate was likely around the turn of the year, so we could see interest rates start to increase sooner than you might think.
So even the experts disagree on the timing – but one thing is for sure, at some point interest rates will go up and it pays to be prepared.
What can you do?
If you’ve had your mortgage for less than six and a half years then you’ll have never known interest rates any higher than they are now. It is hard to believe that mortgage rates were once over 10% for long periods of time (although they aren’t predicted to rise by that much at the moment).
If you are still on a variable or tracker rate mortgage – perhaps your lender’s Standard Variable Rate – then now is the time to think about whether you could cope if your monthly payment increased.
Firstly have a look at your current budget: is there any slack in it? See if there is anything that you could reduce your spending on, like switching your energy supplier to a cheaper tariff or cutting back on some luxuries. This will give you more disposable income each month so if your mortgage payments increase, you’ll be able to afford them.
You could also look at remortgaging to switch to a fixed-rate deal. Speak to your existing lender to see what mortgage deals they’re currently offering and you may be able to fix your payments for two, five or even 10 years. A fixed rate deal gives you peace of mind – whatever happens to the base rate you can be confident that your monthly payment isn’t going to change (at least for the term of the fix).
If your lender doesn’t have any suitable fixed rates currently available, or if you’d like to shop around, you could also speak to a mortgage broker like Ocean. They may be able to access mortgage deals that are only available to brokers, meaning you wouldn’t be able to find these rates on the high street.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.