So it’s happened. Interest rates rose on 2 November from 0.25% to 0.5% – jolting many homeowners to consider their remortgaging options.
And while it was a small increase in the base rate, the knock-on effect has been fast. Lenders have reacted, with many removing their lowest-price remortgaging deals.
Moneyfacts has released data showing that nearly half of lenders have withdrawn at least one of their cheapest rates during the last month.
The Bank of England’s rise lifts the rate back to where it was before the EU Referendum. At 0.5% it’s still at low levels historically. So should you panic?
Prepare your remortgaging options
The answer is no, but you should definitely take a look at your remortgaging options.
If you now have a variable rate tracker mortgage linked to the base rate, chances are you will see an immediate effect on your mortgage repayments.
Inflation is still rising and above the Bank of England's targets. This is partly due to the 18% decline in value of sterling since 2015.
So most financial experts say they expect rates to rise to 1%, in two increases of 0.25%, one next year and one in 2020.
The 0.25% base rate increase to 0.5% is now, on average, adding £22 per month to a typical £175k mortgage, and £51 to a £400k mortgage.
A gradual 1% rate rise, looking at current average monthly payments for SVR customers of £525, would mean an extra £76 a month for the typical loan.
So if you’re a homeowner, with rates on a steady rise, now is the time to take action. If you're considering remortgaging, the best advice is not to procrastinate. The cheapest mortgage rates are disappearing fast.
Which remortgage deal is right for you?
Already the average two-year fixed rate mortgage has undergone its biggest increase in eight years following the Bank of England’s decision.
You may be sitting comfortably with a fixed rate mortgage now and thinking this won’t affect me.
It won’t immediately but when you’re ready to look for your next deal, expect to find the interest rates on the market much higher.
Remortgaging options are most relevant to you right now if you’re a borrower on your lender’s standard variable rate. Or if you're approaching the end of a fixed deal.
In this case, consider remortgaging as soon as possible to avoid disappointment in a market where rates are creeping up.
Be prepared to move your mortgage fast
There are still plenty of excellent deals around, whether you opt for fixed, tracker or variable. But these are likely to reduce as lenders react in advance to the anticipated rate increases.
The faster you can move in response to the rate rise, the better next rate you are likely to get. This is particularly relevant if you’re coming to the end of your deal and have no or little penalty charge.
Remember that most offers from lenders are valid from between three and six months so it's worth applying and getting the offer in the bag.
Beware of the affordability checks
But also be aware that affordability is a major issue now with all lenders. With rising inflation putting the squeeze on us all, they will be looking even more closely at your financing power.
April 2014 saw the introduction of the Government’s Mortgage Market Review. This obliges all lenders to do more to show that borrowers can afford to pay back their mortgages.
First, get your facts straight and get yourself remortgage-ready. We have prepared a detailed remortgaging 10-point checklist you can use here.
We advise using a broker to help you find the right remortgage rate. That's what Moneysavingexpert’s Martin Lewis suggests. “A broker should be able to quickly source a relevant product that fits your credit history. And offer an extra layer of protection if things go wrong. And carry more clout with lenders to ease acceptance on otherwise unobtainable mortgages.”
Want straightforward advice on remortgaging your home? We’re happy to help here.