With all the major banks and mortgage lenders increasing the standard variable rate on their mortgage products, borrowers are facing even more difficulties in finding the mortgage repayment and the situation only looks to get worse. Thousands of people will be faced with the decision of whether to switch mortgage lenders and face early redemption fees and further admin fees or stick with their current provider but pay more in repayments each month.
For some it could mean they simply cannot afford to pay the mortgage each month and could face repossession and losing their home. Mortgage repayment hikes can affect your financial health. Here is what you need to about the effects of rise in mortgage rates:
Top Lenders Hiked Mortgage Rates
Mortgage rates are hiked from time to time, but it is not easy for the borrowers. In the year 2012, Halifax, which as part of the Lloyds group is the biggest mortgage provider in the UK, raised its standard variable rate by 0.5%, taking it from 3.49% to 3.99%. Other banks such as the Royal bank of Scotland and the Clydesdale Bank followed suit. And then Santander announced it will increase its variable rate mortgage from 4.24% to 4.74% as from October 2012. For the average person this could mean having to pay out an additional £44 a month. Anyone that took out a mortgage with Abbey or Bradford and Bingley Building Society will also be affected as these two institutions are now also owned and operated by Santander.
How it Affects you
Cuts in mortgage rates had taken fixed rate mortgages repayment amounts to a new low for those with a decent amount of equity in their home or who could afford a fairly large deposit. However, the move by a number of lenders to increase their variable rates, even though the Bank of England base rate remained unchanged for over 3 years, shows that people should not get complacent about their mortgage and that rates can rise quickly and without much warning.
But, Bank of England raised its base rate from 0.5% to 0.75% in 2018. This was only the second hike in the base rate by the bank in a decade. People with large mortgages are safe now as they are on fixed mortgage rates. The borrowers with variable mortgages will face a little difficulty due to the mortgage repayment hikes as the prices vary according the changes in the base rate.
What are the Reasons for the Hike?
The move by the banks to keep the cost of fixed rate mortgages low while increasing variable rate mortgage rates is a planned move to try and push more borrowers onto fixed rate mortgages, so that the banks’ loan books show a better and more certain return. Borrowers affected by these rate rises need to consider carefully whether it is worth switching mortgage providers. Whilst the Santander variable rate is now around 0.5% above the market average, it is still well below some lenders who are charging up to 5.99%.
What are your Options?
It is a good idea for borrowers to check with an independent mortgage advisor and see if they should switch to a fixed rate product or a tracker mortgage. However, to benefit from the low cost of fixed rate mortgages you will need about 40% equity in your house so anyone with only a small amount of equity or first time buyers will struggle to swap to a different mortgage product.
And borrowers could be hit with early redemption charges, exit fees, legal costs, valuation fees and administration fees adding up to a lot of money. It might just not be worth it. Many will have no option but to try and pay the increased mortgage repayments.
How to deal with Increase in Mortgage Rates
The borrowers can do little about the rise in mortgage rates except for protest. While protesting can be a long shot, the best thing you can do is be prepared. The mortgage rates are always going to go up one or the other way.
- Having a great financial plan is one of the best ways to deal with the hikes.
- Before switching the lender make sure it is good idea.
- Keep your credit score good and don’t take out any more mortgages.
- Paying off more on your monthly repayment while the rates are low is another way of paying off the debt as soon as possible.
- Look for areas where you can cut back and save more.
The mortgage repayment hikes are likely to affect your ability to pay off the debt. The hikes are usually low, but you never know. Keeping an eye on the changing rates and creating a healthy financial system is one of the best ways to deal with the uncertainty of the future.