Base rate rises on a roll?

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Now that base rate rises are on the move borrowers should beware resting on their laurels, warns Duncan Farmer.

It has been about two months since the Bank of England’s Monetary Policy committee raised interest rates and for some borrowers their monthly mortgage repayments have risen, but they could easily switch and find a cheaper deal.

According to figures from Moneyfacts those most likely to suffer are people on their lender’s standard variable rate, some of which can be as high as 6 per cent. Its figures show that six out of ten lenders passed on the full 0.25 point rise and only two, Bath and Principality building societies, added less. Yorkshire building society has announced that it will not be raising its standard variable rate at all.

Tracker rates, which are designed to mirror the Bank’s decisions, no lenders in this sector have added the whole rise to their loans.

The good news is that not only is anyone who has a fixed-rate mortgage naturally protected from any increase in the rate – and more are anticipated – but the average fixed-rate deal has not risen since the Bank’s announcement in August. Lenders had already priced a rise into their loans and have been trying to keep rates as low as possible – but still profitable – in order to attract new business in what has become a highly competitive mortgage market.

The average standard variable rate is 4.84 per cent, compared with average two-year fixed rate of 2.53 per cent. On a £300,000 25-year repayment mortgage that means that a borrow would pay £1,726 a month on a standard variable rate compared with £1,350 on a fixed deal – a difference of £376 a month. In fact, the Post Office has a two-year fixed deal for borrowers with a 40 per cent deposit that charges 1.45 per cent, so the same borrower would have to repay £1,193 a month, saving them another £157.

Charlotte Nelson of Monefacts says: “The ball is now rolling for base rate rises, with at least a quarter-point rise expected in the foreseeable future. Borrowers now shouldn’t rest on their laurels and should opt for a fixed deal to protect themselves from any future rate rises.”

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