After a year of uncertainty, what will 2018 bring for your mortgage?
The impact of an Interest Rate rise
The Bank of England base rate was increased in November 2017 for the first time in a decade from 0.25% to 0.5%, to help bring inflation back down to its target of 2%.
If inflation remains stubbornly above target in early 2018, coupled with low productivity, we should expect another rate rise this year, most likely in the summer. Any future interest rate rise will be small at 0.25% a time. An increase in the summer of 0.25% would see a new bank base rate of 0.75%.
Around two million people are on a lender’s standard variable rate and these customers would be impacted almost immediately by any rate change. A borrower on an average standard variable rate of 4.5%, a mortgage of £200,000 on a 25-year term, would see their payments rise by £330 per year, if the bank base rate was to rise to 0.75%.
Remortgage activity to increase
Remortgage activity surged to a nine-year high ahead of the Bank of England’s decision to raise interest rates in November, with 51,593 remortgages in October – up from 48,133 in September and ahead of the monthly average for the previous six months of 45,670.
With interest rates expected to increase by a further 0.25% in the summer, we expect to see higher levels of remortgage activity in the first half of 2018.
The high street lenders are keen to take advantage of this increase in activity and the competition between them is high. Due to this, there are some very attractive deals available to consumers and so for some, there has never been a better time to review their mortgage and switch.
If you are coming to the end of your fixed rate deal or are currently on a variable rate, you can speak to our mortgage consultant about your finances.
They will be able to review your current position, discuss and understand your plans and advice upon the options available to you, so that you are in pole position to take advantage of any potential savings that remortgaging may bring. In some cases, the savings can be significant.
According to Moneyfacts and based on figures as at 1 November, the difference between the average mortgage rate of two years ago (2.67%) and the current Standard Variable Rate (4.60%) now stands at 1.93%, the highest variation seen since October 2008 (when it hit 2.02%).
What’s more, lenders are introducing more competitive three and 10-year fixed deals as consumers show an increasing appetite for these, so it is potentially worth considering locking in for longer, dependent on your circumstances.