How mortgage holders can beat the rate rise

Today the Bank of England raised interest rates, but savvy mortgage holders can still cut their repayments.

The Bank's decision to raise base rate to a five-year high of 4.75 per cent will increase mortgage payments for everyone on a tracker, discount, or variable rate mortgage - adding around £250 a year to the mortgage repayments on a £100,000 mortgage.

However, by switching to the right mortgage deal, homeowners will be able to avoid this extra payment.

"It’s at times like these that people start to worry about the impact a rate rise will have on their mortgage and family finances," said Neal Pritchard, managing of mortgage advice provider Moneypilot.co.uk.

"We would always recommend that people review their paperwork, check whether they are on a fixed or variable rate deal, and get some advice about the best route for them.

"The mortgage market is still very competitive and there are some great deals to be had if you shop around."

People with fixed-rate mortgages will be protected from this increase - but borrowers have spent the last two months increasing the cost of fixed-rate deals to take today's rate hike into account.

"Around half of all building society outstanding loans are at fixed rates, the highest proportion for a number of years. These borrowers will be protected from the rate rise," said Adrian Coles, director general of the Building Societies Association

However, moving to a fixed-rate deal now might be closing the stable door after the horse has bolted - with the majority of economists predicting that after today's rise in interest rates the Bank of England will hold off on any more changes for a considerable time to come.

Ray Boulger of independent mortgage adviser John Charcol commented: "Being able to catch a good fixed rate is becoming even more challenging.

"However, there will always be a large market for fixes due to many people wanting the security of knowing exactly what they are paying out each month. For those who can afford to take a view on interest rates the best trackers still look competitive with fixes even if rates go up a further 0.5%, which seems very unlikely."

But this might not be the best option.

"An ideal combination is a tracker or discount with a droplock facility, allowing the borrower to switch to any of their lender’s fixes in the future if and when they consider the fixed rate offers better value," Mr Boulger concluded. XXX