09 November 2017

Bank Base has risen...... don't get stuck on the lenders SVR

Last week saw the Bank Base rate rise for the first time in ten years.  It now stands at 0.5%.  The monetary policy, which meets each month to set the base rate, voted by 7 to 2 to increase the rate, in a bid to slow down the rate of inflation which currently stands close to 3%, 1% over its target.
For those with mortgages on a tracker rate, the lenders will probably pass on the full 0.25% increase, with effect from the following month.  So, expect a rate increase letter and a higher payment in December!

For those on fixed rates, nothing will change, until your product fixed rate period ends.  Then it will be down to what’s available at the time.  Unless you are on quite a high fixed rate, in which case sometimes it’s worth looking to see if it’s beneficial to pay any redemption penalties you may have to fix on to a lower rate, that might be available now.  This needs professional advice.

For those on the lenders standard variable rates – WHY?!  The lenders SVR tends to be more expensive than other products available and you should act now as you’re probably paying too much as it is!  Some lenders SVRs are circa 5%!  Lenders will alter their SVRs when they choose. 
The increase in 0.25% will probably take an extra £21 out of your pocket each month, per £100,000 on your mortgage.  Not vast amounts.  However, this could signal the possible end of the cheap rates…

Lenders tend to buy tranches of fixed rate funds from the money markets.  This is then lent to the consumer until the tranche ends.  At that point, they acquire more funds and so on.  However, the latter will inevitably be more expensive and so rates will rise, etc.   As I write, some lenders have increased rates, marginally, but there’s still some amazing products available and I suspect these will be around for some time yet as lenders are desperate for business.  Many products also include free legal costs and free valuations on remortgages, so minimal costs to change lender.  But do remember, although I don’t think they will for some while yet, these products can be withdrawn at any time.  So, if you’re thinking of changing or reviewing your mortgage, now might be the right time to get the paperwork out!

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