The media has been full of news about the Bank of England’s increase in the interest rate.
Announced by the Governor of the Bank of England, Mark Carney, it was the first rate rise since July 2007, as the past decade has seen an unprecedented period of ultra-low interest rates.
If you’re buying or selling a new home in Cardiff, or you’re looking to move, it’s important not to panic. Here’s what you need to know:
What is the Bank of England base rate?
This is the rate of interest set by the UK’s central bank. It’s an important tool to take inflationary pressure out of the economy.
It is used by lenders to set their interest rates. For example, the interest rates you pay when you borrow on a credit card, and the rate you pay when you take out a mortgage.
The rate is set by a panel of economists, the Monetary Policy Committee.
This month’s rise is widely seen as an effort to normalise interest rates after such a long period of abnormally low rates.
How will the increase affect mortgages?
The average home-owner has a mortgage of £175,000 taken out over 25 years. On one of the UK’s most popular tracker mortgages, the rate has risen from 2.25% to 2.5%.
What does that mean in monetary terms? The average monthly mortgage of £763 has risen to £785. That’s a rise of £22 per month.
For those with smaller mortgages, the impact is smaller too.
If you’re on a fixed rate mortgage, your mortgage payments every month will remain the same until the end of the fixed rate period.
For many people, that’s two years.
Unless interest rates fall in the meantime, the next deal is likely to be more expensive. So, it’s important to know when your fixed deal ends and to look for a new deal before you go onto the standard variable rate (SVR).
The SVR tends to be at a higher rate of interest than other deals.
Now might be a good time to review your mortgage with an independent expert to see what deals are on offer. You can always look at a fixed rate to insulate your pocket from any potential increases in the future.
Buy-to-let landlords, who tend to have interest-only mortgages, are seeing a slightly bigger increase. On a £200,000 buy-to-let mortgage, the increase is around £40 per month.
Will it affect the sale of your Cardiff property?
Most experts believe this is unlikely.
In October, there was a small increase in the average UK house price of 0.4% and the experts believe people were already factoring in an expected interest rate rise during that month.
The local marketplace remains buoyant. Cardiff is famed for its excellent quality of life, there is a vibrant mix of different industries to provide jobs, and there is demand for all types of property in the city.
What if you’re saving up for a deposit?
This could be good news for you. Although lenders aren’t forced to increase their interest rate for savers when the base rate goes up, several are already planning to do that.
These increases tend to filter through more slowly than changes to the mortgage rate, though.
Are you looking to sell or buy a property in Cardiff? Talk to our experienced team. Call us on 02920 561111.