Published On: Tue, Sep 15th, 2020

Mortgage: How will your deal and repayments be affected by the Bank of England decision? | Personal Finance | Finance

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Mortgage, pensions and savings can be impacted by interest rate changes and retail financial firms tend to follow what the Bank of England sets. On September 17, the UK’s central bank will release their latest base rate decision and while it has been kept unprecedentedly low for a number of years now, the bank may increase rates or even move them into negative territory.

How these types of changes will affect a mortgage will depend on the type of mortgage held.

If a person has a variable rate tracker mortgage which is linked to the BoE base rate, they will likely see an immediate impact on the repayments if the rate rises.

Those on standard variable rate mortgages are likely to see an increase in line with any kind of interest rate rise, which includes those not influenced by the BoE.

People on fixed rate mortgages may be affected once they reach the end of their existing deal/agreement, with increased interest rates making remortgaging more expensive.

READ MORE: Martin Lewis on the ‘one big change’ mortgage holders may miss

If the repayments are likely to go up, the holder will need to work out if they can afford the increase.

If it looks like there may be a problem with affordability, the Money Advice Service advice people to create a budget and see where they may be able to cut back in other areas of life.

For mortgage holders who cannot trim their budgets any further, advice can be sought from debt advisers, who can be turned to before the holder gets into any actual debt.

Additionally, building up a credit score can also help in the long term as it may help people find better deals when it comes to remortgaging.

On this, it is advisable that where mortgage deals are coming to an end, holders should always be looking to find a better rate.

This could even happen before the current mortgage is up as the Money Advice Service note that while some fees may have to be paid for ending early, the overall savings may still make it worth it.

The final tip from the organisation concerns overpaying on the existing mortgage.

If interest rates were to rise, it may hit some later than others and for these people, it may be worth taking advantage of their existing low rate before it rises and pay off as much as possible.

There will likely be limits on how much can be overpaid as well as additional charges and as such, this should all be checked with the mortgage provider beforehand.

Mortgages are of course not the only financial asset that will be affected by an interest rate change.

Other forms of borrowings will also be affected, including loans, credit cards and overdrafts.

Assets which don’t involve borrowing will also likely be affected and people will need to keep an eye on their savings and pensions in the coming days.

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