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Bank Base Rate - Effects on Mortgages

Bank Base Rate - Effects on Mortgages

Category: Mortgages

Updated: 31/10/2008
First Published: 10/08/2006

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

How will this base rate rise affect you? Can you maintain your current lifestyle?

If you have borrowed to your limit on your mortgage and are on a variable rate deal the increase in base rate is bound to take its toll. Variable rate deals are not protected against increases in base rate, so you may find your mortgage rate increasing. Although a quarter of a percentage point may not seem like a lot, the table below highlights how this will affect your monthly mortgage repayments.

Recent economic signs do not paint a very rosy picture for UK consumers, with rising bad debts, unemployment levels, unsecured debt levels at a all time high and predictions of a further rate increase before the end of 2006.

With LloydsTSB, HSBC, Barclays and HBOS all recently reporting increased levels of bad debt amongst their customer base, today's interest rate rise, combined with heavy increases in the cost of petrol, gas and electricity will see more consumers struggle to manage to meet their financial commitments.

Many people are managing their personal finances by means of an intricate balancing act, with demands for their income pulling it in every which way.

The following table highlights the impact that rate increases could have on your mortgage payment. Assuming a current mortgage tracker rate of 4.5% (prior to 3 August), a rise of just 2% would increase the original payment on an average mortgage of £150K (capital repayment) over 25 years by over 20 per cent.

Interest RateMonthly PaymentMonthly Increase
4.50%£833.75N/A
4.75%£855.18£21.43
5.00%£876.89£43.14
5.50%£921.13£87.38
6.00%£966.45£132.70
6.50%£1021.81£188.06
Calculated on 03.08.2006

If you want to protect yourself against future possible increases in rates, fixed rate mortgages can help. Although these may be more expensive than some variable and discounted variable rate mortgage deals, they give you the security of knowing what your mortgage repayments will be over the term of the deal.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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