850,000 could see mortgage rates rise after BoE base rate decision

Martin Lewis urges viewers to look into mortgage overpayments

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Tracker mortgages tend to follow changes in the Bank of England’s base rate, which is currently at 2.25 percent. Homeowners usually opt for fixed rates as it would give certainty that their deals would not rapidly rise.

After market turmoil, fixed-rate mortgage deals are soaring far above the base rate meaning trackers could now become a more favourable – and cheaper – option.

However, with another base rate decision looming, homeowners are warned their deals could go up again.

Brean Horne, personal finance expert at NerdWallet said: “If the Bank of England decides to increase the base rate next week, mortgage rates are likely to follow suit.

“Already this year we have seen mortgage rates increase across the board due to base rate rises.

“Tracker mortgages are linked to the base rate, making them particularly susceptible to change. Since most tracker mortgages are set at a level just above the base rate, borrowers can expect their mortgage rate to increase if the Bank of England decides to raise interest rates.

“With around 850,000 borrowers on a tracker mortgage in the UK, a significant number of homeowners may be affected.”

He explained borrowers can try and mitigate the impact of rising mortgage rates by checking how much a base rate increase could affect their mortgage payments.

If their repayments are likely to increase significantly, he said it could be worth considering whether switching to a different mortgage deal, such as a fixed-rate mortgage, may help safeguard against the rise.

He stressed the importance of checking the terms of someone’s mortgage first, as ending a tracker mortgage early may incur early repayment fees.

He added: “It’s always worth speaking with an independent mortgage adviser to find out the best option for your financial circumstances.”

Currently, the best variable deal on the market is 4.19 percent with First Direct, while the best two-year fixed deal is 5.64 percent, also with First Direct, according to data from Moneyfacts.

It is recommended that people whose affordability is already stretched should think very carefully before opting for a tracker mortgage, as fixed rates offer stability and the ability to budget regularly.

Whether someone is a new buyer or looking to remortgage, they are encouraged to shop around.

A mortgage broker can help people find the most suitable deal for their circumstances and factor in true costs.

It’s important to not only think about headline rates, but also assess any additional fees that may be involved.

Markets now expect the BoE to hike rates by 75 basis points to three percent at its November 3 MPC meeting in its attempts to bring inflation down from its 40-year high of 10.1 percent.

Managing Director of Rippled online mortgage broker Dan Salley said: “Those on variable and discount rates are also likely to see an increase in their payment. Those on fixed rates naturally won’t be affected.

“It is estimated that around nine percent of outstanding mortgages are trackers. Those on a tracker mortgage will see a change (likely on their next payment) in line with a move in the Bank of England Base Rate.

“As ever, the best thing to do to avoid being vulnerable to Bank of England base rate rises is to apply for a fixed-rate mortgage.

“It’s worth remembering that the fixed rates are much higher than they were just a few months ago and may increase further in the future.”

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