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Your home may be repossessed if you do not keep up repayments on your mortgage.
The Bank of England’s rate-setting committee has hinted that homebuyers could see the base rate rise to 2% in the near future. Rate rises will be gradual, so do you know what will happen to your mortgage repayments if there is mortgage rate rise?
At present the base rate is 0.5%, so a rise to 2% means 1.5% percentage points on your annual interest repayments. Although it sounds low, it equates to an additional repayment of £138 a month if you are an average British homebuyer with typical outstanding mortgage of £175,000.
If the base rate rises to 3%, things could get more difficult as it could mean £238 per month more each month for the average homeowner.
Over 55% of borrowers are on a fixed rate deal, which means that monthly repayments will stay the same until the borrower reaches the end of your current mortgage deal. This is when borrowers could be in for a shock as the rise could be difficult to manage as the borrower will automatically move on to the lender’s variable rate.
There are already signs that lenders are increasing their new fixed-rate deals in anticipation of this rate rise.
The Resolution Foundation has found that one in 10 households will be immediately affected by a rate rise because home ownership has declined, and so many of those with mortgages are now on fixed rates.
House prices will also be affected, as a turn in economic confidence will result in a fall in house prices. In fact, house prices have already started to fall in London and parts of the south-east. A rate rises could push the decline further north.
However, it’s good news for savers as the interest paid on savings rates will finally start to rise, although banks do have a habit of delaying passing on any rise in interest rates.
If you would like advice on how any rate changes could affect you, contact Derngate Wealth today.