Mortgage rates to rise despite base rate remaining low

Many people incorrectly believe that their mortgage interest rate will remain low as long as the Bank of England base rate does likewise. This IS NOT CORRECT. The only borrowers who definitely benefit from the Bank of England base rate (base rate) being so low are those who specifically have mortgages that track the base rate. Some lucky blighters may have taken out life time base rate tracker mortgages several years ago, these people are likely to now be paying very little interest and will continue to be in this position for the foreseeable future. However, these people are few and far between most people just think that if they are on a variable rate mortgage the rate will not go up until the base rate rises. The majority of mortgage borrowers actually have interest rates that are variable and linked to their individual lenders standard variable rate. This may still be fairly low but the likelihood is that these rates are increasing.

The reason for this is mortgage lenders do not borrow their money from the Bank of England and in reality the base rate that it sets has little or nothing to do with the rates that they charge. If you thought that banks borrowed money at 0.5% and then leant it at 3% and hence made a 2.5% profit you would be wrong. Banks just like countries borrow money on the international money markets as well as lend money (much smaller amounts) from deposits made by their savers. During the pre credit crunch era when it came to lending money it was considered that large banks and countries were very safe bets, hence they could borrow almost inexhaustible amounts of money at low rates. Something that Greece, Ireland and Italy etc took foolish advantage of. Recent history has witnessed bank collapses and countries defaulting on loan agreements, the banks who leant money to Greece agreed to writing off 50% of their loans, so much for safe lending to countries. In the early part of the millennium banks in turn thought that any loan secured against property was also of very low risk as property prices only went up, this has also completely changed. So the net result is that although the bank of England base rate will remain low the rates at which banks borrow and hence lend money is going to go up. In fact it is not going to go up it is already going up. Over the last month nearly every mortgage available on the market has increased in price. The average increase has been about 0.25% but some trackers and short term fixed rates have increased by nearer 0.5%.

Our advice to anyone who has a mortgage is to thoroughly understand exactly what dictates the interest rate that they pay. If like a majority of people your mortgage is not a base rate tracker or a fixed rate and is in fact simply on your lenders standard variable rate then you MUST consider your options and prepare yourself for increases in payments or look to move mortgage to a base rate tracker or longer term fixed rate. Simplicity Financial Services are offering a FREE mortgage audit to anyone who contacts them in order to help them understand the options available to them. If you would like to take advantage of this service then please click here. Lenders are still offering some excellent rates and in particular we feel that great value exists in 5 year fixed rate mortgages or even tracker mortgages. One thing we are certain about is just sitting on your lenders standard variable rate is very unlikely to be the right financial move.