There has been much discussion about whether or not mortgage interest rates would rise or remain stagnant in the run up to Brexit. As we write this the Bank of England was still due to announce its decision on the matter.
However, it is widely predicted – due to the current Brexit parliamentary debacle over whether the UK will actually leave the European Union or not – that interest rates won’t rise. This is on the grounds that there’s already too much uncertainty for the economy as it is.
At the moment the interest rate is 0.75 per cent. It may, however, go up to one per cent towards the end of the year if the economy picks up as a result of a non or delayed Brexit. The way to avoid the cost of any future mortgage payments rising as a result of the Bank of England interest rate going up is, of course, to sign up to a fixed rate mortgage deal. That way your payments will remain the same for the lifetime of the deal. This ‘lifetime’ is usually for one up to 10 years; the longer the deal, the higher your payments will be (i.e. a five-year fixed rate deal will cost more than a one-year fixed mortgage deal).
Having said that, your mortgage could be a lot higher if you’re on a variable rate and the interest rate goes up unexpectedly. And, remember, it can go up by more than 0.25 per cent (although that’s very unlikely).
To go for a fixed or variable rate mortgage?
The reason the cost of your mortgage would rise is if inflation rose above two per cent – it’s currently 1.8 per cent. If it seems as if it will rise the then it makes sense to try and ‘fix’ a deal as far as your mortgage is concerned (ie get a fixed rate). The best deals will be prior to the rate rising but how you can tell is difficult. Gauging the market and listening to financial experts all helps you to decide whether to go for a fixed or variable rate, but when it comes down to it, his will always be a bit of a gamble simply because no-one (apart from the BoE Monetary Committee know for sure).
Advantages of a fixed rate mortgage
You will be able to budget accurately for the length of time of your mortgage deal. Neither will you have to live in fear of any nasty financial surprises as far as your house finances are concerned.
Be aware though that once your fixed deal ends, you’ll be transferred onto a variable mortgage rate.
Advantages of a variable rate mortgage
If the interest rate goes down, then so does the amount you pay on your mortgage (although it’s unlikely mortgage rates will reduce since they are already historically low). Ten years ago, at the height of the last recession, interest rates fell to 0.5 per cent. Shortly after the UK vote to go ahead with Brexit was announced, the mortgage rate fell even further – to 0.25 per cent.
If you’re fortunate enough to come in to a bit of money then repayment of your mortgage is far less expensive on a variable rate than a fixed mortgage deal.