To assess how you may be financially impacted by the increase in the Bank Rate, it is important to identify what type of mortgage you have and when your current plan is due to expire. This is because different types of mortgage plans will impact homeowners in different ways:
The most common plan is that of a fixed-rate mortgage, with approximately 74% of homeowner mortgages taking this form. A fixed-contract mortgage allows repayments to maintain the same level of interest – essentially, your rate of interest will be at the same level as it was when you initially started your current mortgage plan.
For the duration of your fixed-term mortgage, you will therefore not be impacted by the change in Bank Rate. However, the issue with fixed-rate mortgages is that the length of the plans are often short-term, with the most popular options being either two-year or five-year terms. At the end of your fixed period, therefore, you will have to re-mortgage and either find a new lender or update your plan with your current lender. It is here that homeowners will feel the stark increase in the bank rate, with many homeowners who re-mortgaged before the pandemic seeing a rise of over 4%.
Whilst the percentage appears to be small, the impact may not be, as mortgages are one of the greatest expenditures for households across the UK.
There are two types of variable term mortgages, namely Tracker and Standard Variable Mortgages (SVRs). A Tracker mortgage is where the level of interest will change in accordance with the base rate, with the tracker rate usually being set around 2% or so above the Bank Rate. An SVR mortgage is where a lender has the discretion to change their level of interest when they like, which is also often a reflection of the fluctuation of the Bank Rate.
Homeowners who are on a form of a Variable-Term mortgage are those likely to suffer the most from the increase in Bank Rate, and may not have experienced such high levels of interest since the beginning of the exponential rise in January 2022.
How can we help?
Our specialist Residential Team has a wide range of experience when dealing with your Residential Conveyancing and Mortgage matters, with our most experienced lawyers amassing over thirty years’ of combined experience in the field. At Hodgkinsons Solicitors, we have helped individuals throughout Skegness, rural Lincolnshire and beyond with their Residential matters for almost 40 years. Whether you are located in Skegness, Boston, Louth, Lincoln or surrounding areas, we can help you. If you would like to discuss a Residential or Mortgage related issue, please get in touch by submitting a no obligation consultation form online or by calling us on 01754 897150.