18 October 2017

TSB is getting Britain ready for rate rise

68% of borrowers don’t know how a base rate rise will affect them.

If rates rise by 0.25%, a typical variable mortgage repayment could cost an extra £13 a month.

Switching to a fixed rate deal could save borrowers £119 per month.[1]

TSB offers top tips to help borrowers get prepared for a rate rise.

On 2 November 2017, the Bank of England’s Monetary Policy Committee will decide if the base rate should increase from its current record low of 0.25%.  Governor Mark Carney has dropped his biggest hint yet that a rate rise may not be far off. 

It’s been over a decade since Brits last saw a rate rise in July 2007.  In that time, almost 2.6 million Brits have become homeowners [2] – that’s a whole generation of people who have never experienced a rate rise and who may need more support in understanding how one would affect them.

How would a base rate rise affect homeowners?

Borrowers who have taken advantage of fixed rate mortgage deals will not be affected by a base rate increase.  However, for people with tracker or variable rate mortgages, a rise would mean an increase to their monthly payments – although this will likely be modest.   

Effect of a 0.25% base rate rise on 20-year mortgage term, based on a variable rate going from 3.74% to 3.99%
Mortgage balance Monthly increase (£)
£100,000 £13.09
£125,000 £16.36
£150,000 £19.63
£175,000 £22.90
£200,000 £26.17

On a typical variable mortgage of £100,000, an increase of 0.25% would see monthly payments rise by around £13 – or just over £3 per week.  TSB is encouraging all borrowers to pause for thought about how they would factor any increase into their monthly budget.  It could be as simple as buying fewer takeaway coffees each month, or having a supermarket takeaway night rather than phoning for a pizza to come to the door.

New research by the challenger Bank reveals how people would respond if they had to cut back:

  • 67% would consider buying cheaper groceries.
  • 64% would eat out less.
  • 43% would bring in a packed lunch to work.

Are Britain’s homeowners prepared?  

TSB’s research shows that two thirds (66%) of homeowners ‘worry’ to some degree about mortgage rates rising, and more than two thirds (68%) of homeowners don’t know how a rate rise will affect them.  


[1] Assuming a borrower is on a typical variable rate of 4.04%, 0-60% LTV and switches a £100,000 repayment mortgage with a 20-year term to a TSB deal (two-year fixed rate 1.64%, no fee).

[2] Source: UK Finance. Between July 2007 and June 2017, there were 2,574,100 first time buyers.

There is no ‘one size fits all’ solution for the 48% of borrowers who may see their payments increase [3]– but there is no need to panic.  For borrowers who are concerned, now is the time to talk to their lender and start preparing.  

For example, a typical borrower with a £100,000 mortgage on a standard variable rate could save £119 per month – or £2,859 over two years – just by switching to a better deal [4].

Be “Ready for Rate Rise”

TSB is committed to helping people to borrow well, which is why the Bank is urging people to understand their current mortgage position and to plan ahead.  Here are TSB’s four top tips for homeowners:

  1. Understand your current mortgage
    Do you know if it’s a tracker, variable or fixed rate mortgage?  When does the term end and are there penalties for exiting the mortgage early (early repayment charges)?  Knowing the terms and conditions will allow you to understand the options available.  Contact your mortgage provider if you need help getting this information. 
  2. Track your spending
    Knowing how much money you are spending each month is really important; as you can then measure it against your income to see what you might have leftover.  If you realise that you are spending more than you are earning – start thinking about where you can cut back.  Spending money on lunch and coffees at work can be a real drain, so why not commit to taking in lunch every other day?
  3. Shop around
    Speak to your lender or financial adviser.  It’s likely that they will be thinking about base rate changes too.  They can help you explore your options and see if remortgaging would suit your circumstances, potentially saving you tens or even hundreds of pounds every month. 
  4. Don’t panic 
    No one is suggesting the base rate is going to increase significantly any time soon – so don’t panic.  There is still time to plan for any future increase and, like anything, preparing early is always the best plan of action.

Ian Ramsden, Director of Mortgages at TSB, said:  “We don’t know when the Bank of England will change the base rate, but we do know that preparing early is the first step in helping Britain’s homeowners to get ready for a rate rise.  There’s no need to panic and no one is suggesting sudden large increases in the base rate; but just a little planning now can make a big difference in the future.  

“Our TSB partners in our branches and on our customer service team are on hand to help our customers get prepared, and understand what their options are if they have any concerns.  We’re here to help.” 


[3] TSB estimates that 47.8% of people with a mortgage are on a variable rate product impacted by a base rate change. 

[4] Assuming a borrower is on a typical variable rate of 4.04%, 0-60% LTV and switches a £100,000 repayment mortgage with a 20-year term to a TSB deal (two-year fixed rate 1.64%, no fee).

Ready-For-Rate-Rise-IG-Final-image

 

Notes to editors

Research conducted by OnePoll in July 2017 with 2,000 respondents.

TSB was built to bring more competition to UK banking and ultimately make banking better for all UK consumers.  TSB only serves local customers and local businesses, to help fuel local economies, because communities thriving across Britain is a good thing for all of us.

We have a simple, straightforward and transparent banking model and make clear on our website how we operate and make money.  We offer the products and services people tell us they want, with none of the funny stuff people normally associate with traditional banks.

Our five million customers appear to notice: TSB is Britain’s most recommended high street bank and was recently identified as one of the top 10 big companies to work for.

For further information about TSB Bank plc, please visit our website www.tsb.co.uk.

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