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Mortgage rate rise options for homeowners after Bank of England decision

todayJune 17, 2022 2

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Another hike to the Bank of England’s base rate has left many homeowners worried about what the future holds for their mortgage payments. The rate was upped on Thursday to 1.25%, which will increase the monthly amount around two million people have to pay.

It is the fifth consecutive rise and means rates now stand at their highest point for 13 years. It comes as predictions are made that the economy could shrink and inflation rise further to above 11% in the autumn.

But what does it mean in practical terms? Whether it affects you or not right now will depend on the type of mortgage you’re on.

Read more: Barclays, Santander and other banks confirm when mortgage interest rates will go up

Sarah Pennells, consumer finance specialist at Royal London, explained how someone with a £200,000 25-year repayment mortgage will pay an extra £27 a month as a result of the rates hike. This adds up to £324 over the year.

“While some homeowners will be able to afford that, others will undoubtedly struggle, especially as other costs spiral,” she told The Mirror. “A mortgage broker would be able to recommend the best mortgage for you as it’s not necessarily going to be the one with the cheapest headline rate of interest.”

We’ve broken down the different types and how you could potentially save money.

Fixed rate

If you’re on a fixed rate then it’s good news – for now. The amount you pay won’t change until you reach the end of your current fixed period.

If you’re approaching the end of a fixed term it might be a good idea to start looking for a new deal now.

Standard variable rate

A standard variable rate mortgage or SVR means you could hunt for a new mortgage deal at any time. Whether you can do so without paying a penalty depends on your deal.

If you can’t, you will have to wait for your current deal to run out, or pay the penalty cost.

Tracker mortgage

If the rise and the potential of further rises is concerning you then see if there’s a better deal out there. Again, check the terms of your mortgage as there may be a penalty fee.

Laura Suter, head of personal finance at AJ Bell, said: “The current average variable rate mortgage is 2.8%, according to the Bank of England, which will rise to 3.05% after today’s increase. However, the top two-year fix is 2.6%, meaning that at £100,000 of borrowing a homeowner could still save £276 a year by switching.

“On a £250,000 mortgage that would equal a £696 a year saving and on £400,000 of borrowing a homeowner could save £1,116 a year by switching.”

Written by: thehitnetwork

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