The Bank of England looks likely to keep interest rates unchanged this week according to many financial experts. This follows last months news after all nine members of the monetary policy committee voted unanimously in favour of creating a cash injection of £75 billion in new money into the UK economy and to cut interest rates to 0.5 per cent.
So how does this affect those of us with mortgages? Well, in short, if you have a tracker mortgage then you’re still laughing. For now at least anyway.
So what should we do to make the most of the continuing low interest rates?
As LTV’s (loan to values) increase due to the fall in UK house prices, home owners who have benefited from lower monthly payments should consider making overpayments to compensate by reducing their loan amount. This should provide some assistance towards maintaining lower LTV bands and to help borrowers to qualify for the best interest rates available once it’s time to remortgage. People opting for this strategy would also benefit from the obvious knock on effect of reducing the years remaining on their mortgage term, and therefore could potentially save them thousands in interest over time.
So what about those less desirable fixed rates that some of us signed up to over the last couple of years? Well if you have less than 15% equity in your home then you’re no worse off than before since these mortgage rates are currently at similar levels, so no harm done. However, lower interest rates are now available for homeowners with greater levels of equity in their home, so maybe paying those dreaded early repayment charges and remortgaging to deals with a cheap interest rate is the way forward.
Finally, there are those who are clinging onto those terrifically low standard variable rates after coming to the end of their fixed rate or tracker mortgage deals. A word of warning is needed here, however. Mortgage payments may be low for now, and standard variable rates may remain low for some time to come, but at the same time house prices continue to fall thus eroding our equity and potentially pushing us up a tier in LTV bands towards the higher interest rates, or even towards negative equity. Maybe now is the time to review your mortgage afterall?
The message? Understand where you are with your mortgage now, and plan for what might be around the corner. We may not be able to control the economy or interest rates, but we can educate ourselves in preparation for what may lie ahead. Talk to an Independent Mortgage Adviser to understand what options are available.