Are you ready for a mortgage rate rise?
The UK’s key inflation rate – the Consumer Prices Index – rose to its highest level since 2012 in September, hitting 3%.
The news makes the prospect of an interest rate rise in November ever more likely, as calls grow for the Bank of England to hike rates.
Amid the speculation, one lender has found that most borrowers have no idea how a rise in the Bank of England Base Rate would impact their finances.
TSB found that 68% of borrowers don’t know how a Base Rate rise would affect them. As a result the lender has published guidance to borrowers who want to ensure they are ready for a rate rise.
How much extra?
TSB calculated that if the Base Rate rises by 0.25%, a typical £100,000 variable mortgage repayment could cost an extra £13 a month. Those with an outstanding balance of £200,000 would see their repayments increase by around £26 a month.
Those on a fixed rate mortgage would see no increase in their rate or monthly repayments for the duration of their fixed deal.
What should you do?
TSB is encouraging all borrowers to think about how they would factor any increase into their monthly budget. It could be as simple as buying fewer takeaway coffees each month, or having a supermarket takeaway night rather than phoning for a pizza to come to the door.
The bank has also published its four top tips for homeowners:
1. Understand your current mortgage
Do you know if it’s a tracker, variable or fixed rate mortgage? When does the term end and are there penalties for exiting the mortgage early (early repayment charges)? Knowing the terms and conditions will allow you to understand the options available. Contact your mortgage provider if you need help getting this information.
2. Track your spending
Knowing how much money you are spending each month is really important; as you can then measure it against your income to see what you might have leftover. If you realise that you are spending more than you are earning – start thinking about where you can cut back. Spending money on lunch and coffees at work can be a real drain, so why not commit to taking in lunch every other day?
3. Shop around
Speak to your lender or financial adviser. It’s likely that they will be thinking about Base Rate changes too. They can help you explore your options and see if remortgaging would suit your circumstances, potentially saving you tens or even hundreds of pounds every month.
4. Don’t panic
No one is suggesting the Base Rate is going to increase significantly any time soon – so don’t panic. There is still time to plan for any future increase and, like anything, preparing early is always the best plan of action.
Ian Ramsden, director of mortgages at TSB, said: “We don’t know when the Bank of England will change the Base Rate, but we do know that preparing early is the first step in helping Britain’s homeowners to get ready for a rate rise. There’s no need to panic and no one is suggesting sudden large increases in the Base Rate; but just a little planning now can make a big difference in the future.”