Bank of England raises bank rate to 0.75% but what does that mean for you?
Following on from the news that the Bank of England has decided to raise the Bank Rate by 0.25% to 0.75%, many people considering moving home will be waking up to the highest interest rate in nearly a decade this morning. This may sound daunting at first.
What does this really mean if you’re buying a home right now?
Firstly, the good news is that a lot of lenders foresaw that the rate would rise, due to the Chancellor of the Bank of England, Mark Carney, adhering to a ‘forward guidance’ policy. This means that whilst mortgage rates are low at the moment, the quarter per cent rise we saw has already been ‘priced in’ so many lenders are likely to keep their current rates as they are for the meantime.
If you’re yet to actually apply for mortgage and book your product, there’s still an opportunity to take advantage of one of the ultra-competitive deals that are out there.
What this did remind us of though, is that the interest rate is on its way back up to a more ‘normal’ rate, which means that we are likely to see more increases over the next few years. Many borrowers are likely to opt for a fix rate in order to secure their monthly mortgage payment.
If this option appeals – as it does with over 90 per cent of all borrowers – then it’s wise to consider how long you’d like to fix your rate for.
How long should I get a fixed rate for and what is the difference in price?
Whilst two-year deals are normally the cheapest of all, you might prefer the longer-term security of a five-year deal, which in reality is only a few pounds more a month.
In most cases in fact, the monthly difference in cost of a two-year fix compared to a five- year fix is the price of a takeaway, which is a small price to pay when you think about the peace of mind they offer.
There is something else to consider if you’re buying at the moment. If interest rates are on the way up, then whilst a fixed rate mortgage deal might be really cheap now, no one knows what interest rates will do in the long term, and of course at some point your fixed rate will come to an end.
So, make sure that you do the sums with your mortgage adviser and see how much your mortgage payments would be on a higher interest rate. That way you know that you can cover it without worry if rates continue to rise, and that you’re not creating the potential for stretching your budget in the future.