Homeowners who bought their properties 10 years ago will now experience for the second time the effect of Bank of England rate increases.
The majority of mortgage holders are on fixed rates so the recent increase will not see them receiving letters from their lenders next month advising them what their new increased mortgage payments will be – however, if their fixed rate is coming to an end shortly they will find any Standard Variable Rate offered by their lender will have increased by up to 0.25%.
What is the difference between fixed, tracker, discount & standard variable rates –
The rate is fixed for a certain time – usually from 2 years upwards with some lenders offering 2, 3, 5, 7 & 10 year fixed rates.
The lender will offer a fixed rate for a certain term, ie 2 years from completion or a finishing date such as 31 October 2020.
By offering a fixed rate the lender is promising not to increase / decrease rates for that period of specified time – your part of the bargain is to stay with that lender for the period of the fixed rate – lenders usually charge a penalty known as Early Repayment Charges if you repay the mortgage before the fixed rate period ends.
STANDARD VARIABLE RATES
Once your fixed rate expires you will automatically go on to the lenders Standard Variable Rate which is normally a lot higher than the fixed rate which is expiring.
Lenders set their own Standard Variable Rates but tend to follow any increase in the Bank of England Rate.
BANK OF ENGLAND TRACKER
As the name suggests the rate follows the rate set by the Bank of England which has now increased from 0.50% to 0.75%.
Lenders usually offer a rate plus the Bank of England rate ie 1.5% above the Bank of England Rate would equate to a pay rate of 2.25% ( 1.50% plus 0.75% ) – these rates are variable and therefore will rise and fall with any changes in the Bank of England rate.
Again the rate offered will be for a specified time and will then revert back to the lenders Standard Variable Rate.
The lender will give a discount off their Standard Variable rate for a specified time ie 3% discount for 2 years – therefore if lenders Standard Variable Rate is 5.50% you receive a discount of 3% which means that the pay rate is 2.50%.
Like the tracker rate this rate can increase / decrease over the specified term and once the deal expires you will revert back to lenders Standard Variable Rate.
HOW TO AVOID PAYING LENDERS STANDARD VARIABLE RATE
If your existing mortgage rate is due to expire now or within the next 3 to 4 months contact Manchester Mortgages on 0161 706 0242 who will review your current circumstances and will research the whole of the market to recommend the mortgage most suited to your needs and monthly budget.