So, after years of monthly "no change interest rate announcements (other than the post referendum decrease being subsequently reversed), Bank of England base rate increased from 0.5% to 0.75% in August, this is the first increase above 0.5% since 2009.
Many mortgage holders have happily remained on standard variable or tracker rates of interest during the intervening nine years, whilst some of these rates will be competitive by historic standards, others aren’t. I believe that many of these mortgage customers have failed to review the options purely because their monthly payment hasn’t increased, rather than looking at the competitiveness of the interest rate and considering the risks of a variable rate versus a fixed rate for between two and ten years. So, if you are one of the many people who have seen their payments increase (or at least received a letter from their bank or building society advising of an increase) what should you do?
Of the many options available, doing nothing, however small the increase, is the worst one, a no obligation review with an independent mortgage adviser can consider the numerous routes available to you, and it may be that the advice after carrying out such a review is to do nothing, but why take the risk?
When talking to clients we will consider: –
-Staying with the current lender on a standard variable or tracker rate – this can be the way forwards if you intend to move to a new house very soon.
-Staying with the current lender but switching to a new rate – having considered the option of re-mortgaging elsewhere – this can sometimes be a good option.
-Re-mortgaging to a new lender to take advantage of some extremely competitive rates which are available currently.
At the same time it is also possible to: –
-Fix the interest rate for between two and ten years to provide certainty of monthly costs for that period.
-Remain on a variable rate to give flexibility to move home or make unlimited overpayments.
-Reduce the overall mortgage term whilst maintaining previous payment levels due to the competitiveness of fixed rates available.
-Arrange an offset mortgage to take advantage of savings which still gain very little in terms of interest received on a standard savings account.
The overriding and important message is to talk to a professional and fully consider your options. We would be delighted to help.
Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at paul@innovateml.co.uk or tony@innovateml.co.uk or call 0191 223 3514.
