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Interest rates - Planning ahead

Planning ahead for a future rise in interest rates

Budgeting for potential changes to your mortgage payment is an essential part of your financial planning.  With interest rates at historic lows it's important that you consider how you would cope if interest rates or your mortgage payment increased.

The Bank of England meet every month to decide whether the Base Rate should be changed.

As of 2 November 2017 the current Bank of England Base Rate is 0.5%.

The effect a change in the Bank of England Base Rate will have on you depends on what type of mortgage you have:

If you have a tracker mortgage:

A tracker mortgage tracks the Bank of England Base Rate and therefore a change in Base Rate would directly affect you and your mortgage payment.

If you have a fixed rate mortgage:  

If you have a fixed rate mortgage, the fixed rate will be guaranteed until the end of the promotional period, but the payments due after this point could increase.

If you have a Standard Variable Rate (SVR) mortgage:

Standard Variable Rate (SVR) is a variable rate of interest set by a lender, which many mortgage products change to when their promotional period ends. Changes to SVR are made at a lender's discretion and are not directly linked to an external rate.

If you have a discount rate mortgage:

A discount rate mortgage will give you a discount off either our Standard Variable Rate or a product linked to the Bank of England Base Rate, so if either of these interest rates change, then your mortgage interest rate would change too.

Your latest mortgage statement will tell you what type of mortgage you have and if applicable when any promotional period will end.

We recommend that you regularly review your mortgage payments to ensure that you could cover any potential increases in the Bank of England Base Rate.

A mortgage calculator would help you understand by how much your monthly payments could potentially increase. A monthly budget planner is also a useful way of keeping track of your finances.

The example below illustrates the affect of a 0.5% rise in the current Bank of England Base Rate on a Base Rate Tracker mortgage. This is based on an Interest Only mortgage and is for illustrative purposes only.

Current Bank of England Base Rate 0.5% Bank of England Base Rate increases to 1.0%
Mortgage: £100,000 Interest only Mortgage: £100,000 Interest only
Product Type: Base Rate Tracker Product type: Base Rate Tracker
Current pay rate: 4.49% New pay rate: 4.99%
Current monthly payment: £374.17 New monthly payment: £415.83

Use our budget planner to help you list and add up all your household income and expenses. This will enable you to:

  • Work out how much money is coming into your household
  • Work out how much money is going out
  • Work out affordable amounts to repay any debts you may have

If you are having problems paying your mortgage, send us a completed copy of the budget planner, including your payment proposals, at the following address: Mortgage Collections Department, PO Box 3191, 1 Temple Quay, Bristol, BS1 9HY.

If you would like to discuss any aspect of your mortgage further, please do not hesitate to contact us, we’re here to help. You can call us on 0345 300 8000*.