The Bank of England (BOE) has today announced a further interest rate rise of 0.25%.
Rates had been at a historic low of 0.1% at the start of December 2021, but the BOE has made the decision, in the face of rising inflation, to again increase interest rates.[1] This follows a previous increase in December 2021 and brings interest rates to 0.5%.
Online mortgage broker Trussle has calculated that this latest increase could add a further £331.56 onto the average mortgage annually.[2] This is on top of the previous £324.48 increase that homeowners faced in December. As a result, homeowners’ unknowingly sitting on Standard Variable Rates may see their mortgage has increased by £656.04 since December 2021.
This rise could particularly impact homeowners who took out 2 year fixed rate mortgages during the Stamp Duty Holiday and are now nearing the end of their mortgage terms. To help homeowners brush up on mortgage options that may be available to them, Trussle has put together its top tips –
- Remember you can usually remortgage a full six months before your deal finishes. The advice from us is to take advantage of the current deals sooner rather than later. Previous research from Trussle found that people can save an average of £3,500 a year by remortgaging[3], which is equivalent to 15% of the UK’s average salary.[4] You may have to pay an early repayment charge to your existing lender if you remortgage.
- A 5 year fix could be a very good option in the current climate. With interest rate rises in sight and inflation pumping out at an all time high, a steady, unchanging monthly payment can ease the worry for many. There are still some great 5 year deals on the market, especially with a slightly higher LTV, so committing to a little extra monthly payment now could in turn be a great relief should rates and the price of living continue to rise. The best 5 year fix as of today (19/01/2022) for an 80% mortgage on the average UK house price is currently 1.72% with Natwest. This goes down to 1.32% with Barclays if homeowners have an LTV of 60%.
- Do you qualify for a green mortgage? A green mortgage essentially rewards you for having an energy efficient home by offering you more favourable rates. Check the status of the home you are currently in or any new purchase (A or B on your EPC certificates) as savings could be made here. Green mortgages can offer lower mortgage rates, cashback when you take out the mortgage, or additional borrowing at lower rates. NatWest, Halifax and Barclays offer green mortgages, with NatWest offering a reduced rate on a two-year or a five-year fixed-rate mortgage, along with cashback.[5]
- Investigate part and part mortgages. While not suitable for everyone and lenders will want evidence that you can still comfortably keep up with your monthly payments, part and part mortgages are offered by some lenders, and can be an effective way of reducing your monthly payments. This is where some of the loan is repayment and some is interest only. Good brokers can fit these products to suit your needs and then make sure you have an overpayment clause to allow you to take advantage and pay off more when that extra income comes in.
- Think about overpaying. While rates are low, now could be a good time to start paying that bit extra every month, or as a one-off, if you can. Check your criteria as most mortgages allow you to overpay by up to 10% per year and the amount that can be saved by doing this regularly is staggering. Overpaying by just £50 per month can knock almost 2 years off your mortgage and save you over £5,000 during its lifetime.[6]
- Ever thought about an offset mortgage? This links your savings account to your mortgage and means lenders will treat any savings you have like mortgage overpayments. You will still be able to dip into the savings you’ve chosen to offset, but this will affect the interest you pay. You will also need to have your savings and mortgage with the same provider.
- If you are a FTB try to save as big a deposit as possible. A bigger deposit means lower interest rates when it comes to getting a mortgage. It will also make you more eligible for a mortgage at the outset. This might be the time to ask the Bank of Mum & Dad to help out – they probably have a lower interest rate than the standard lenders! This is also completely normal, research has shown that 40% of buyers now need family support to purchase their first home.[7] Ideally, a 20% deposit is a good starting point, but if a 25% were to be obtainable it is likely even better rates will be available. Trussle’s best first time buyer mortgage is a 2 year fixed rate at 1.68% from Principality Building Society[8].
Miles Robinson, head of mortgages at Trussle: “in the face of soaring inflation, this latest interest rise has hardly come as a surprise. Increasing interest rates is a common tool used by financial institutions worldwide to try and curb the rate of inflation. However, this decision will add further financial pressure to homeowners already facing a cost of living crisis.
For those households perhaps feeling the strain on their finances, speaking to an adviser and looking at your mortgage plan can be an effective way of finding savings you didn’t even know existed. Our customers on average save £3,900 per year by remortgaging.[9] What’s more, doing this through an online broker is quick, simple and hassle free – it literally takes minutes.”
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