How the Bank of England Rate Rise Can Affect Your Remortgage

How the Bank of England Rate Rise Can Affect Your Remortgage

Hayley Hellon

Hayley Hellon

|

March 10, 2022

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The Bank of England’s base rate has risen. On February 3rd 2022 the rate increased by 0.25% leaving the current rate at 0.5%. Although this rate is still within the realms of being historically low, as inflation continues to rise there is a great risk of this rate increasing again in the near future.

As this all might sound quite complex, there are two ways in which this rate rise can affect you:

1) How much interest you build up on your current savings

2) How much it will cost to borrow money

How will the base rate increase affect me?

In simple terms, the Bank of England lends out money to commercial banks such as Lloyds and Natwest and these banks then need to pay interest on the money lent to them. If the base rate rises then interest rates rise and these increased costs are often passed down to customers. Customers then have to pay a higher interest rate when borrowing money, for example when remortgaging.

Increased base rates are good for savers who will earn more interest on their money, but not so great for those currently borrowing money as they will need to pay a high amount of interest depending on their current mortgage product.

How can I avoid paying a higher amount of interest?

If you have a tracker mortgage or variable-rate mortgage then your interest rates rise and fall along with the Bank of England’s base rate, which means you will be paying more interest on your current mortgage product quite soon.

One way you can avoid doing this is by changing your mortgage product or remortgaging soon to a fixed-rate mortgage, which can save you money as the interest rates do not change over a certain period of time, for example 2, 3 and 5 years.

The benefits of a fixed-rate mortgage mean you always know how much you need to pay each month before your fixed rate comes to an end, you are able to make overpayments and you won’t be affected by the increased base rate rise.

Although this seems like a great option there are a few factors you need to consider before changing your mortgage product.

If you end your mortgage product early (i.e before your current product is due to end) then it is highly likely you will be charged an early leaving fee or discharge fee.

Though this might seem like a lot of money in one go, there is evidence to suggest changing your mortgage product or remortgaging now, before rates rise again, will save you money in the long run.

If you’re one of the lucky ones and your product is about to end anyways then it’s likely you will not have to pay any additional fees.

You will also need to consider and research a new mortgage product, broker and lender as a means of ensuring you find the best product for you.

You will want to make sure every part of your remortgage is done as quickly and smoothly as possible to avoid long waiting times and stress. This is where a trusted, expert conveyancer comes in.

Conveyancers track every part of your remortgaging process by staying in constant communication with your lender and broker. Due to this, your remortgage can take less than the standard waiting time of 6 – 8 weeks to process and complete.

Happy couple talking about remortgaging

What can I do now?

If you want to remortgage as a way of saving money in the future, you first need to talk to your current lender about leaving your contract early and what fees will be applied if you do.

You will then need to consider which brokers and lenders will provide you with the right new product and high-quality service, which you can trust to complete your remortgage.

And finally, it’s recommended you employ the help of a conveyancing firm or conveyancer to ensure every stage of your remortgage is done as quickly and as smoothly as possible.

Remortgaging now is a great way to save yourself money in the future as the base rate is expected to rise and can leave you with a better product that suits your personal circumstances and financial requirements.

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