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Can your Mortgage go up?

So, you’ve signed all the documentation, you’ve agreed a deal with the seller and are finally moving home. You even know how much you’ll be paying until the end of the mortgage term! But wait, do you? We’re going to explain to you how mortgage rates can fluctuate, show you how this happens and how you can keep an eye on any changing interest rates!

How can mortgage rates go up?

So, when you’re asking whether mortgages can go up, it’s important to understand what exactly it is that you’re asking. Any prospective millionaires and lottery winners read no further, but for most of us, if you want to buy a house you’re going to need to borrow a LOT of money.

This is where banks come in, they lend you a sum large enough to pay for the property and then you must pay them this fee back plus interest. Think of a mortgage as a secured loan, once you make the final payment full ownership becomes yours. Up to that point, your lender can take back the property if you default on your monthly payments. But just how much interest should you be paying? This is affected generally by the Bank of England’s base rate or, in some cases something called the LIBOR rate. This means that when the Bank Base Rate goes up unless you are on a fixed deal, so will your interest rate and sadly, the amount that you have to pay back to the banks also increases.

This can change up to eight times a year depending on what the Bank of England thinks will keep the economy in the UK growing steadily, so keep an eye out! So, in short, yes, your mortgage can go up. Let’s find out more about how and why.

How is the Bank of England’s base rate set?

The blunt truth is that there are loads of factors that play into how the base rate is set. Mark Carney, the governor of the Bank of England said that he primarily wanted to base this on the unemployment rates in the UK. He tried to do this by giving a guideline where once unemployment had fallen below 7% then interest rates could begin to increase again.

The problem was that when this threshold was unexpectedly hit so quickly Carney had to ditch the unemployment trigger and instead look at 18 economic indicators which can help forecast how the base rate changes.

What are the effects?

Let’s imagine that your mortgage has gone up by around 0.5% to 1.5%. Not great but it doesn’t sound like the end of the world does it? And you’d be right to think so. But the truth is that while this doesn’t sound like a lot at face value if you’ve got a mortgage on a house around the £200,000 mark this can cost you around £100 extra per month.

This could be bad news for the 3.5 million people in the UK that are on a standard variable rate or on a tracker rate. The former refers to your lenders standard rate, which mortgages revert to at the end of an offer period. The lenders set their own Standard Variable Rate & follow the Bank of England (or LIBOR) rate rises & falls but not necessarily by the same amount. This means that your mortgage rate will vary with fluctuating interest rates. Tracker rates are similar except these directly follow the rise & fall of the Bank of England base rate so are a truer reflection of the country's economy. 

How can you combat this?

At Mortgages Online our team of experts have all the tools to help you combat any sudden mortgage interest rate increases. What we can do is compare a variety of rates and different types of mortgages from loads of different lenders to find the right deal for you. What we also do is answer any questions you might have about all things mortgage related. So, once you’ve got to the end of this article and want to go over a couple of things with us, don’t hesitate! Drop us an email or give us a call.

Do all mortgages go up?

The simple answer is no. Fixed rates can be a great way of combatting a hike in mortgage interest rates. The vast majority of people at the start of their mortgage term are on fixed rates. The reason? Fixed rate mortgages are basically immune from sudden increases of interest rates. This means that if interest rates go up then your fixed rate will stay… fixed! While there is a slight drawback in that if interest rates decrease you fixed rate will also stay the same it can be a great way of providing protection from fluctuating interest rates. However, knowing exactly what your monthly mortgage payment will be for, say the next five-years does give you the opportunity to budget.

Does that mean you should act fast and get a fixed mortgage rate now?

The theme central to every question on whether you should fix your mortgage is based on the worry that interest rates will get higher. Therefore, with the Bank of England predicting interest rates to increase even further you should definitely be thinking about getting a fixed mortgage rate. But don’t feel like you have to act on this alone. Contact one of our advisors to get expert opinion on when you should opt for a mortgage.

Remember, look out for interest rate increases. If the Bank of England is anything to by (it definitely is) there should be more rate increases on the horizon. So, pay attention and if you want any help, don’t be afraid to get in touch!


Laura Waller

Laura Waller has been working in the mortgages industry since 2013, joining an independent brokerage in Essex. Laura has CeMAP 2 & 3 – Certificates in Mortgages Advice and Practice. Since then Laura oversees marketing for Mortgages Online, using her experience and expertise to write articles and blogs about mortgages and related topics.

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