What Can Homeowners Do To Protect Themselves From Interest Rate Rises?

The Bank of England’s base rate has been at 0.5% or below for the last eight years, blessing homeowners across the country with rock bottom interest rates. However, all this could be set to end in a matter of weeks, with economists warning that an interest rate rise is likely to occur before the end of the year. If rates do grow, this will affect mortgage holders and increase the cost of their loan.

Here’s how homeowners can prepare for an interest rate rise and minimise the impact one could have on their finances:

Determine how much an interest rate rise could cost you

If you have a variable rate mortgage or your current fixed rate period is coming to an end, it’s wise to determine how much an interest rate change could cost you. Here are three examples:

If your outstanding mortgage amount stands at £100,000 and you’re paying it back over 35 years at an interest rate of 2%, a 1% interest rate rise could see your monthly repayments rise from £333.35 to £387.83. Over the course of a year, these repayments would add up to £653.71.

If your outstanding mortgage amount stands at £220,000 and you’re paying it back over 25 years at an interest rate of 2.5%, a 0.5% interest rate rise could see your monthly repayments rise from £995.06 to £1,052.84. Over the course of a year, these repayments would add up to £693.43.

If your outstanding mortgage amount stands at £300,000 and you’re paying it back over 25 years at an interest rate of 3%, a 2% interest rate rise could see your monthly repayments rise from £1,435.70 to £1,773.81. Over the course of a year, these repayments would add up to a whopping £4,057.38.

You can work out  how much an interest rate rise would cost you by using an online mortgage calculator such as this one from This is Money

Work out how affordable this rise would be

Take a close look at your budget to determine whether or not you could afford to keep up with the new repayments following an interest rate rise.

If the increase would make your repayments unaffordable or they’d force you to drastically change your lifestyle to cater for the change, it may be worth talking to a mortgage broker to weigh up your options.

Lock yourself into a low fixed rate deal

With interest rates currently at an all-time low, there’s never been a better time to fix your mortgage deal for a specified period of time. By fixing your mortgage, you can protect yourself from interest rate rises and ensure your repayments stay the same for the duration of the agreed period.

In order to fix your interest rate, you’ll need to remortgage your property. Although this may sound like a difficult process, with the help of an experienced mortgage broker, you can make the transition that little bit easier. They’ll do most of the work on your behalf, guiding you through the application stage every step of the way.

Remortgaging your property won’t be right for everyone. Some people may find that a remortgage costs them more money than they can save. This is because some lenders expect borrowers to pay early repayment charges and fees for ending their mortgage deal earlier than originally planned. So before taking the leap, ask your mortgage broker to work out which option is most financially beneficial for you.

Prepare your application

If you decide to remortgage your home, you’ll need to undergo affordability checks to ensure you can keep up with the new mortgage. Some homeowners may find that these affordability assessments are more thorough than the initial checks they had for their current mortgage. This is because lenders have been forced to tighten their criteria in recent years to prevent people taking out unaffordable loans.

You may be expected to provide the following:

• 3-6 months of payslips
• 3-6 months of bank statements
• Passport and/or driving license
• Utility bills
• If you’re self employed, you’re likely to need at least 3 years’ accounts/tax returns>

To find out how we can help you protect yourself from interest rate rises, please get in touch with the team at TaylorMade. Take a look at our guide to remortgaging to learn more about the process.