Martin Lewis’ MoneySavingExpert has warned all homeowners to check their mortgage because some people could save thousands of pounds as a result of the latest base rate hike.
Recently, the Bank of England raised the key rate by 0.5%, from 1.25% to 1.75%.
If interest rates are higher, you will pay more to borrow on products like mortgages. Economists believe the base rate could reach 3% next year, which means big increases in mortgage rates, the Mirror reports.
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Now the last Email from MoneySavingExpert said homeowners should check their deals now to offset rising home loan rates. The email said: “Anyone with a MORTGAGE should check their deal now – some can still save £1,000.”
The increase in your mortgage rate depends on the type of agreement you have. Around 80% of UK homeowners have fixed rate mortgages. But nearly a third (32.7%) of them have terms of two years or less, meaning many will be reappointed this year or next. Almost two-thirds (59.7%) have mortgage terms of five years or more, according to data from the Bank of England.
MoneySavingExpert said, “Still, if your patch ends in a year or two, you’ll probably have to pay more for a new deal.”
People with adjustable rate mortgages have to pay higher rates much faster. MoneySavingExpert said: “On a variable rate? Costs will probably increase in a few weeks. If it’s a tracker it will increase by 0.5 percentage points, which adds around £25 or so per £100,000 debt to a monthly payment. If it’s a standard variable rate (SVR) – or linked to one – it’s not certain that it will increase by the same amount, but it’s likely that it will.”
But you might be able to get a competitive mortgage rate now, before home loan rates start to rise even higher. Many lenders will allow you to take out a new mortgage up to six months before the end of your current contract – but beware of early exit charges on some mortgages.
MoneySavingExpert added, “If either a) you’re on an SVR, b) you can leave your deal without penalty, or c) your patch or tracker ends in the next six months, then see if you can save with a new one. OK .” Moneyfacts data shows that the cheapest rate for someone looking for a £200,000 two-year mortgage is now 3.19%.
This is currently offered by Progressive Building Society. Over 25, that equates to £968 a month. If the base rate is increased from 1.75% to 3%, if the 1.25 percentage point increase is passed on, this would mean the above mortgage payments would amount to £1,105 per month. That’s an extra £137 per month, or an extra £1,644 per year.