The Bank of England has announced a 0.25 per cent rise in interest rates in the UK.
Interest rates now stand at 0.5 per cent - which is the second increase in seven weeks after the rate went up from 0.1 per cent to 0.25 per cent in December 2021.
This came on the same day that Ofgen announced that the energy price cap will rise by 54 per cent, affecting around 22 million homeowners across England, Wales and Scotland.
As the cost of living crisis escalates, millions of households can now expect to pay more on their monthly mortgage repayments.
READ MORE:
Mortgage Advice Bureau has now explained how the change in interest rate will affect you and your mortgage - and what homeowners should consider doing to help manage their repayments.
Consider locking in a fixed rate mortgage
Depending on the type of mortgage you have, you may or may not be affected by the interest rate rise.
"Homeowners whose mortgages are directly linked to the bank rate may see an increase in monthly repayments," explained Brian Murphy, head of lending at Mortgage Advice Bureau.
"Those who are on lender revert rates or Standard Variable Rates (SVRs) will have to wait and see if their lender will pass on the rate increase in full or only in part.
"Those who have a tracker rate mortgage are more likely to see the rate passed on in full, and possibly as soon as their next mortgage payment.
"A fixed rate mortgage could provide a temporary safe haven against upcoming interest rate rises as their fixed interest rates are guaranteed for a set time period.
"If you’re remortgaging, make sure to speak to your lender about your mortgage terms as there may be exit fees or early repayment charges to consider."
Move quickly
Any change in interest rates can impact the property market and therefore what mortgage deals are on offer, and for how long.
"The sooner consumers act, the more likely they will be to secure a rate close to the lowest ever levels," says Brian.
"For most people a remortgage is a fairly straightforward process and certainly not something to be scared of.
"Likewise, for those nearing the end of their current fixed rate mortgage deal or who are considering new borrowing, it may pay to contact a broker or lender to start the process sooner rather than later in order to secure a competitive deal."
Shop around for the best deal
For first-time buyers or those looking to remortgage, it's important to look around to see where is offering the best deal.
"A mortgage broker can help you find the most suitable deal for your circumstances and factor in true costs," Brian said.
"It’s important to not only think about headline rates, but also assess any additional fees that may be involved."
Work out what you can afford
Creating a budget based on your income and outgoings will help you to see any areas where you can potentially cut back and save.
"Budgeting can help to either boost your deposit or assess if you can overpay your mortgage," Brian explained.
"It can also help you create a savings buffer should any unexpected financial costs or bills arise in the future.
"A mortgage adviser can also help you with budgeting and affordability – this will be the first thing they look at to ensure you can afford mortgage payments both now and in the future."
To help work out your monthly repayments on your mortgage or even your overall monthly spending, you can use a mortgage repayment calculator or budgeting calculator.
Overpay your mortgage if and when you can
As mortgage interest accrues on the full amount of your mortgage over its entire term, homeowners can consider overpaying to reduce the amount on which interest is charged.
"Doing this may help not only pay off your mortgage debt faster, but it will also be a big money saver in the long run," said Brian.
"For example, if you have a £100,000 mortgage over 25 years with an interest rate of 4%, and you pay off an extra £100 a month, you could reduce your mortgage term by six years and save £15,534 on interest.
"Keep in mind though whether you can overpay on your mortgage without a penalty. A 10% overpayment facility per annum without incurring penalties is fairly typical of many products.
If there is an early repayment fee, it’s worth speaking to your mortgage adviser to see if the overpayment charge outweighs the other benefits of making overpayments."
