Are you one of the many homeowners that might be affected by a rise in your mortgage rate?
It’s been a long time coming, but after almost six years many experts believe an interest rate rise is coming some time soon. Since March 2009 the Bank of England rate has stood at a record low of 0.5%, having been as high as 4.5% just five months earlier in October 2008.
The Centre for Economics and Business Research (CEBR) says that it could mean as much as £119 added to the average monthly mortgage payment across the country, with figures in the south-east much higher.
Do you know how an interest rate rise might affect you? Watch this video to see what some people said when we went on to the streets to ask for some thoughts.
Many homeowners, particularly those who’ve joined the market in the past six years, will have never been faced with an interest rate rise. Not surprisingly perhaps, many are not sure if, when and how rates could increase, with six out of ten homeowners saying they are confused about when it will happen.
CEBR’s research found that around three-quarters of homeowners had not been putting money aside in order to be ready for an increase in the cost of their monthly mortgage repayment if interest rates went up.
If you have a credit card, loan or mortgage, a rate rise could mean an increase in your interest rate and your monthly repayments (depending on the terms and conditions). If you have a fixed rate mortgage, you won’t be affected if the rates go up during your fixed period, but when the time comes to re-mortgage, your interest rate could jump up quite significantly.
Some experts are predicting that when a rise does come, it will be in steps of 0.25% over the next few years, peaking around 3% in 2017. This might not sound like much, but the Office for Budget Responsibility (OBR) has said that an increase of 2.5% in the base rate would mean someone with a £150,000 repayment mortgage would have to fork out an extra £230 a month.
Having a higher credit score could actually mean you get better deals or lower interest rates. The Experian Credit Score is a guide to help you understand your credit report, and how past credit management can impact on future credit applications and for you to monitor your progress as you get your finances in order before you apply.