The good news for homeowners looking to remortgage is that interest rates are very low at the present time; and low interest rates mean smaller monthly repayments on your mortgage.
There are two main factors that influence the interest rates mortgage providers are offering. The first is the Bank of England’s ‘base rate’, currently at 0.1 per cent, and while only certain types of mortgages are actually linked to the base rate, providers are guided by it. This is because the base rate is the rate at which the Bank of England charges other financial institutions to borrow money.
When the base rate moves, mortgage providers will often follow suit, so a higher base rate means elevated interest rates, which is excellent for savers but generally not such great news for homeowners. However, the fact that the UK is a ‘homeowner economy’, with much of our wealth tied up in property, has been one of the reasons the Bank of England has looked to keep interest rates low since the financial crash of 2008.
For homeowners, this tends to mean lower monthly mortgage repayments, and, therefore, more money to spend. Something that’s essential for a healthy economy.
However, it’s important to note that not all mortgages interest rates are dictated by the Bank of England base rate. The second key influence is general market forces and the need to be competitive which is balanced by the mortgage providers own financial modelling. In fact, at a time of not only very low Bank of England base rates, but with very little change in the base rate for many years, market forces tends to have had the biggest influence on the rates you are paying and able to find on the market.
So, should you monitor interest rates when you’re applying for a mortgage?
Yes. But not obsessively so.
All the evidence is that interest rates will be low for the foreseeable future, and any rise in the base rate to combat inflation will, according to the Bank Of England, be “modest”.
You should, however, be aware of the different types of mortgage available – and how they’re affected by interest rates.
With a fixed-rate mortgage, you agree to a set term and interest rate with your lender, which means if interest rates go up, your payments stay the same. However, if rates go down, you’ll be stuck at a higher level until your current term ends.
If you’d prefer to take your chances, you might be better with a variable-rate loan like a ‘tracker’ mortgage. These tend to follow the Bank of England base rate for a fixed term (some follow the Libor rate instead), meaning you’ll benefit when rates go down (but take the hit if they go up). Whichever type of mortgage you choose, your interest rate will also reflect your circumstances. So a homeowner with high equity or a buyer with a substantial deposit will be able to get a lower rate than a first-time buyer on a 95 percent LTV (loan to value) deal.
However with interest rates a fraction of what they were 15 years ago (and likely to stay that way), there’s never been a better time to apply for a mortgage.
If you need to understand whether you have the right mortgage deal compared to the market, why not get in touch with us here at Charles Cameron and Associates. One of our expert mortgage advisers will be happy to take a look at your existing deal and help you to understand whether the interest rate you are paying and the type of mortgage you are on is right for your circumstances.