Why do interest rates change and what does this mean for your mortgage?
September 2024
We’ve seen interest rates change a lot in the past few years and this is likely to continue with the recent decision by the Bank of England to cut the base rate. With rates shifting regularly, it’s a good idea to know how this could affect your mortgage. Doing so will mean you can plan ahead to secure the best possible deal.
This blog will help you to learn more about your mortgage rate and why you will likely see a change in your rate when you change your mortgage product in the future, depending on the length of your current term.
What is your mortgage rate?
What influences your mortgage rate and why do rates change?
What does this mean for you?
Whether you have a fixed deal coming to an end or a variable rate mortgage, changing rates may mean moving onto a higher rate despite the recent reduction in the Bank of England's bank rate. This is because rates remain high compared to the last decade, so although rates have now begun to fall, they do remain at levels not seen since 2008. An example could be a borrower with a mortgage loan of £200,000 and a 20-year mortgage term. When their current fixed rate mortgage comes to an end, they may have to move from a product on a 2.5% rate to a 4% rate. This would see their monthly repayments increase from £1,060 to £1,212[1].
Changes in house prices could be good news as falling rates begin to stimulate the market and push property prices upwards. Your Loan to Value (LTV) ratio may be lower if the value of your house increases, meaning the amount you borrow as a percentage of the value of your home has decreased. This will make it easier to refinance or get better mortgage terms from your provider. That said, house prices can fluctuate, and a decrease in your property’s value could increase your LTV ratio.
It’s important you’re prepared for how your mortgage will be affected by interest rates and house price changes ahead of time, so that you’re able to plan around potentially higher costs and save for the things that really matter to you.
At Coventry Building Society, we have a number of resources to help make sure you’re fully prepared for the end of your current mortgage deal.
If your current mortgage product comes to an end in the next four months, you can either contact us to discuss what a product transfer could mean for you by calling our expert team on 0800 121 8899 (available from 8am to 7pm Monday – Friday and 9am – 2pm Saturday) or alternatively, speak to your broker.
Related articles:
Five factors to consider beyond the mortgage rate
When it comes to securing a mortgage, rate often takes centre stage. But true value extends beyond interest rates. Find out the other factors to consider.
Why do interest rates change and what does this mean for your mortgage?
September 2024
We’ve seen interest rates change a lot in the past few years and this is likely to continue with the recent decision by the Bank of England to cut the base rate. With rates shifting regularly, it’s a good idea to know how this could affect your mortgage. Doing so will mean you can plan ahead to secure the best possible deal.
This blog will help you to learn more about your mortgage rate and why you will likely see a change in your rate when you change your mortgage product in the future, depending on the length of your current term.
What is your mortgage rate?
What influences your mortgage rate and why do rates change?
Your mortgage rate can be influenced by a number of factors, including the Bank of England’s base rate, inflation and the state of the economy. Mortgage rates are now changing, with the Bank of England cutting the base rate in August 2024 for the first time since March 2020. All of this economic data feeds into mortgage rates, either directly, if for example you’re on a Bank of England base rate tracker, or indirectly if you want a new fixed rate mortgage via something called a swap rate.
Your mortgage rate can be influenced by a number of factors, including the Bank of England’s base rate, inflation and the state of the economy. Mortgage rates are now changing, with the Bank of England cutting the base rate in August 2024 for the first time since March 2020. All of this economic data feeds into mortgage rates, either directly, if for example you’re on a Bank of England base rate tracker, or indirectly if you want a new fixed rate mortgage via something called a swap rate.
What does this mean for you?
Whether you have a fixed deal coming to an end or a variable rate mortgage, changing rates may mean moving onto a higher rate despite the recent reduction in the Bank of England's bank rate. This is because rates remain high compared to the last decade, so although rates have now begun to fall, they do remain at levels not seen since 2008. An example could be a borrower with a mortgage loan of £200,000 and a 20-year mortgage term. When their current fixed rate mortgage comes to an end, they may have to move from a product on a 2.5% rate to a 4% rate. This would see their monthly repayments increase from £1,060 to £1,212[1].
Changes in house prices could be good news as falling rates begin to stimulate the market and push property prices upwards. Your Loan to Value (LTV) ratio may be lower if the value of your house increases, meaning the amount you borrow as a percentage of the value of your home has decreased. This will make it easier to refinance or get better mortgage terms from your provider. That said, house prices can fluctuate, and a decrease in your property’s value could increase your LTV ratio.
It’s important you’re prepared for how your mortgage will be affected by interest rates and house price changes ahead of time, so that you’re able to plan around potentially higher costs and save for the things that really matter to you.
At Coventry Building Society, we have a number of resources to help make sure you’re fully prepared for the end of your current mortgage deal.
If your current mortgage product comes to an end in the next four months, you can either contact us to discuss what a product transfer could mean for you by calling our expert team on 0800 121 8899 (available from 8am to 7pm Monday – Friday and 9am – 2pm Saturday) or alternatively, speak to your broker.
Related articles:
Planning ahead for a lower interest rate environment
What do you need to think about when interest rates start to drop?
Related articles:
Five factors to consider beyond the mortgage rate
When it comes to securing a mortgage, rate often takes centre stage. But true value extends beyond interest rates. Find out the other factors to consider.
