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Your home may be repossessed if you do not keep up repayments on your mortgage.
It looks like there will be an interest rate rise in May, after the Bank of England announced in February that it will need to raise rates in order to tackle high inflation, which remained at three per cent in January 2017.
We have enjoyed historically cheap mortgages for almost ten years, but this could be coming to an end given that over the last 18 months, mortgage lending has been propped up with over £100bn from the Term Funding Scheme and this will end very soon.
Some banks have already increased some rates on some of their mortgages but this doesn’t mean that the market isn’t still extremely competitive. This is stopping rates from rising too sharply.
A rise in rates will be a shock to many people; especially those who have never experienced a rate rise before. However, a rate rise will have been factored in when they bought their first home in the past ten years given that new rules were introduced four years ago to curtail high risk lending.
In terms of how it will stack up, if you have a mortgage of £200,000 you will need to find an extra £300 per year if rates rose by 0.25 per cent. Borrowers need to understand that we have had an exceptional period of low interest rates and many now believe this is the norm, and that before the financial crisis in 2008 the Bank of England Bank rate was five per cent and average mortgage rates well over six per cent.
Mortgage rates are very unlikely to return to five or six per cent again, even if rates go up a few times a year. Many experts believe that it will settle at two per cent given that the economy is still recovering and Brexit is causing further uncertainty.
Those with a fixed term rate will be unaffected for the term of their mortgage (usually around two to five years). As rates are expected to rise rather than fall, a fixed rate could be a safer bet for those seeking mortgage products especially for those with limited income.
If you are nearing the end of your mortgage term, you need to consider remortgaging to avoid paying the lender’s variable rate. In fact, you should really get advice around six months before your current rate expires.
Talk to Derngate Wealth today to find the best mortgage deal for your own circumstances.