Mark Carney, Governor of the Bank of England, has hinted that interest rates may rise from 0.5 per cent at ‘the turn of the year’. But before borrowers panic he also added that he expected rates to rise slowly over the next three years, settling at around 2 to 2.5 per cent.
So what does this mean for borrowers? Well, there is no need to panic but it is worth considering how you would cope with an interest rate rise. If you are on a fixed rate there is nothing to worry about as any rate rises won’t affect your mortgage payments but check how long you have left to run on that fix. If it’s only several months it may be worth securing a new fixed rate now.
Once the money markets price in a rate rise, the cost of fixed rates start shooting up. Five-year fixes look particularly good value at the moment but don’t fix for that long if there is a chance you might move in two or three years, or you’ll be hit with a hefty penalty.
If you are on a variable rate and would struggle to pay your mortgage if rates were to rise, then it is also worth looking at a fixed-rate mortgage. While we have probably seen the back of the very cheapest deals, the ones still available aren’t bad.
If you are on your lender’s standard variable rate (SVR), it might be low now but it will go up when interest rates do. What’s more, because the SVR is not linked to base rate like a tracker, it might go up by more than base rate, which has happened in the past. If you are happy with a variable rate but want a bit more certainty, a base-rate tracker is linked to interest rates so will move in line with them. There are a number of penalty-free deals so you can get out of them at any time and they can be cheaper than fixes, at least initially.
Contact us if you would like more information about the mortgage most suited to your circumstances.