Here, we explain what the interest rate rise means for you, and how it will affect your mortgage.
What does the interest rate rise mean for my mortgage?That depends on the type of mortgage you have. If you have a variable rate mortgage, which an estimated 2.2m homeowners in the UK do, this means your mortgage rate can go up or down at the discretion of your lender. If you have a tracker mortgage deal, which follows the Bank of England base rate plus a set percentage, then you will always see your mortgage rate rise or fall in line with the base rate, so the latest hike means your rate will soon increase by 0.75 percentage points.
For example, someone with a £150,000 repayment mortgage with 20 years left to run would currently be making monthly payments of £851 if they are on a tracker rate of 3.25%. However, their rate will now rise to 4%, meaning their monthly payments will increase to £909, a rise of £58 a month or £696 over a year.
If you’re on a standard variable rate, discounted or capped variable deal, it will be up to your lender to decide whether they pass on the latest increase in full, so you should hear from them soon how much your rate will go up by.
What if I’m on a fixed rate mortgage?Around 6.3m homeowners are on fixed rate mortgage deals, and so won’t see any increase in their monthly payments following November’s rate rise. However, if you are on a fixed rate mortgage, check when your deal finishes, as you could see a sharp increase in your monthly costs when you come to remortgage.
The good news is that the latest rate hike had already been priced in, as fixed rates are mainly determined by money market ‘swap rates’ rather than the base rate. These rates have been gradually coming down, with some lenders already reducing the cost of some of their fixed rate deals.
If you’re not sure how to proceed when your fixed mortgage deal ends, seek advice from a mortgage broker who can look at all the mortgage options available to you and help you find the best deal to suit your needs.
What if I can’t afford higher mortgage payments?Many people are struggling to cover their living expenses given soaring energy bills and steep food costs, and a rise in mortgage payments will make life even more challenging financially.
If you can’t cover higher mortgage payments following the rate rise, speak to your lender as soon as possible and let them know that you’re finding it difficult to make ends meet. They might be able to work out a way to make your monthly payments more manageable, for example by extending your mortgage term.
If your lender can’t help, or you feel like your debts are spiralling out of control, you may want to get in touch with charities that offer free debt advice, such as StepChange, National Debtline or the Debt Advice Foundation.
Are house prices likely to fall?No-one knows what will happen to house prices in future, although according to Nationwide’s latest house price index, issued prior to the latest interest rate announcement, annual house price growth is starting to slow.
However, there is still a limited supply of homes available, which is currently helping to support prices. Some experts are predicting that prices could fall next year, but only time will tell what impact steeper borrowing costs will have on the property market.