After several months of speculation and heavy hints from the Bank of England that the base rate would soon be on the up, it was finally announced in November that interest rates would indeed increase for the first time in a decade.
As base rate moves from 0.25% to 0.5%, we asked Dominic Taddei of the Mortgage Advice Bureau to help us explain what this means for homeowners and those currently on the hunt for a mortgage.
A 0.25% rise is unlikely to be a defining factor in whether a first time buyer will or won’t buy a house. The shift in base rate has caused lenders to increase their interest rates on mortgages already but the monthly change is unlikely to be big enough to put buyers off entirely.
That being said, anyone buying a home for the first time will be looking after every penny, so my advice would be to shop around carefully for the best deals but to get in quick and secure a fixed rate mortgage.
Buyers should remember that 0.5% was the base rate from 2007 right up to the Brexit vote, so it isn’t a financial situation we haven’t seen before. In historical terms, the current rates are still extremely low and so for those looking to buy a house or indeed a new luxury apartment at Quartermile, now is a great time to make a move on the property ladder. While a 0.25% rise might not be a game changer, further increases could be.
If you are currently on a fixed rate period then any increase in base rate or lending rate won’t concern you until this period ends. If you now find yourself free to change your mortgage then interest rates are likely to be slightly higher than they were 2-3 months ago, but you will still be able to enjoy a competitive rate.
It is certainly a time of change and the Bank of England have suggested that further increases in base rate are on the horizon so you should discuss your options with a reputable broker as a priority. Getting initial advice from a good broker shouldn’t cost you a penny so there’s really nothing to lose from gathering information and lots to gain. The savings you can make by switching can be significant, depending on your own circumstances.
Lenders are usually fairly quick to react and most lenders will adjust their initial fixed rate period almost immediately.
It is often difficult to know whether rates will continue to rise, although this is usually what happens when rates start to move. I personally would be looking for a fixed rate mortgage and depending on your longer-term plans, as well as your attitude to risk, it may be worth looking at a longer term fixed rate mortgage. Even if a 5 year fixed rate was your preference, these products are usually portable should you want to move during the period.
The obvious selection to be made at this point in time is a fixed rate mortgage rather than a tracker or variable. Lenders will adjust their products, including all variable rates, so it’s worth keeping an eye out, although the volume of clients we deal with who will take on a variable mortgage at this time, will be limited I would imagine.
Interest-only mortgages are very different and are related to how the mortgage is repaid, not the product type available to the client. Lenders have far less appetite for interest-only mortgages these days and as such the choice is limited to lower Loan to Value clients. Even then, the criteria are usually very tight.
The market has remained steady in certain areas for some time now and I would expect this to stay the same. There will be some who want to move quickly in case rates continue to go up, others may want to take stock and wait for less uncertainty.
On balance, I don’t imagine we’ll see a spike either way, but we will most likely see an upturn in people re-mortgaging over the coming months.
The change in rates is more likely to worry new borrowers and people with less experience than it is people who have already gained experience in the property market. For many homeowners, this will be the first rate change and that brings a level of uncertainty. The seasoned borrowers who saw all the changes 10 years ago, I think will be less worried and more likely to be able to absorb any changes.
Of course, one of the added benefits of buying at a new development like Quartermile is the fact that advice and guidance is readily available, no matter how much experience you have in the property market.
My advice would be to continue to save from month to month. The change is not likely to make much difference from a savings point of view but it is always good to build the healthiest deposit you can. If you believe that you are nearly in a position to move, keep your eye on interest rates and take the advice of a good mortgage broker ASAP. This will help you to establish your borrowing capabilities. You may have more options than you think.
As rates rise the people who fall into the savers bracket will, of course, benefit. But a 0.25% increase will have little impact. No doubt home movers/buyers will have one or two more questions than they did prior to the change. I don’t think 0.25% will stop too many people pursuing their dream of buying a first home or upgrading.
My advice at this point in time would be for buyers to focus on the quality of their investment. Whether it’s a couple looking for the right apartment to suit their lifestyle or an investor looking for a great rental opportunity, it is often better to look past the headlines and instead pay attention to what is the right decision for their future.
If you are looking for mortgage advice, why not speak to the Mortgage Advice Bureau on Dundas Street in Edinburgh.