Base rate rise a new experience for more than two million home-owners

The base rate rise is a new experience for the estimated 2.6 million home-owners who have only ever seen static or falling rates after getting on the property ladder in the past decade.

Years of low rates mean mortgage costs have reached record lows.

But in recent weeks, there have been signs of mortgage costs edging up as speculation over a possible base rate rise has mounted - giving borrowers a taste of what could be to come.

When setting mortgage rates, lenders take the base rate into account as well as other factors, such as a lender's own borrowing costs.

Whether or not a home-owner sees an immediate impact from the base rate rise also depends on what type of deal they are on. Some mortgages are directly linked to the base rate while others are not.

Fixed-rate deals cushion borrowers against any immediate impact of a base rate increase.

More than nine in 10 (94%) new mortgages taken out in the second quarter of 2017 were fixed-rate, according to trade body UK Finance.

Looking at the stock of all outstanding home-owner mortgages taken out since 2005, more than half of customers across the UK are currently on a fixed rate.

Of the 9.2 million outstanding home-owner mortgages, 8.1 million are regulated.  Of these, 4.4 million are on a fixed rate, with 3.7 million on some sort of variable rate. The remaining 1.1 million are unregulated mortgages, handed out before 2005.

Home-owners on a variable rate mortgage may find themselves particularly vulnerable to a base rate rise.

Bank rate tracker mortgages track the movements of the base rate, plus a certain percentage margin specified by the lender.

Meanwhile, some borrowers may be on their lender's standard variable rate (SVR), after finishing an introductory deal. The SVR will be determined by the mortgage lender.

David Hollingworth of broker London & Country said the rates on some mortgage deals being offered by lenders have already increased recently.

Sarah Beeny, owner of estate agent Tepilo.com, said people who have become home-owners in the past decade and have never had to deal with the impact of a base rate rise on their mortgage costs should not panic.

Offering reassurance to aspiring first-time buyers, Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "Those hoping to get on to the property ladder shouldn't be too disheartened by a rate rise as they still have an abundance of deals to choose from in the market for various deposits.

"They will, however, need to reassess their finances, as a more expensive mortgage will eat into their monthly income."

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