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Bank of England increase base rate

On Thursday 22 June 2023, the Bank of England increased the base rate from 4.5% to 5%.

What is the base rate and why does this matter?

The base rate, set by the Bank of England’s Monetary Policy Committee, is the rate they charge other banks and lenders when they borrow money. It is the main driver of rates on mortgages and savings products in the UK and any changes are likely to impact the cost of mortgages and the return on savings. Generally, a higher base rate means banks and building societies are likely to increase the cost of mortgages, whilst savers can expect a slightly higher rate of interest on their savings. However, this isn’t always the case.


What does it mean for my existing mortgage?

Fixed-rate mortgages currently account for four out of five mortgages in the UK. If you have this type of mortgage, the change will not affect your payments immediately, but could do when the fixed period ends.

For those on a tracker mortgage, which directly follows the Bank of England base rate, your rate is likely to increase by 0.50% immediately and payments will go up from next month.

For those on a discounted rate, or standard variable rate mortgage, your lender may decide to pass all, some, or none of the increase in rates on to you. They will write to you in advance of any increase in payments.


What does it mean for mortgage rates?

For UK borrowers on a fixed rate, this change won’t immediately impact monthly payments. For those approaching the end of their existing mortgage deal, looking to purchase a property with a new mortgage, or already on a standard variable rate, it is likely that rates will increase. However, this rate rise has been well forecasted, and many lenders already factored the increase into new mortgage deals. Some lenders however will withdraw mortgage rates and launch new products with higher rates.

Despite the recent increases, the base rate still remains low compared to historic levels.


What does it mean for my mortgage offer?

Clients with existing mortgage offers will not see rates increase for as long as the mortgage offer remains valid.


What should I do?

Getting in touch with a mortgage adviser can help you understand how the increase in base rate might impact you, explore your options for remortgaging or switching rates, and help you access support if you think you may encounter difficulties in paying your mortgage.


Want to find out more?

For more information about the base rate changes, and what they could mean for you, get in touch with an adviser today.

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Secure your mortgage now against potential interest rate hikes

Protecting yourself against any further potential increases in interest rates

As the market prepares for the Bank of England’s decision on raising the base rate, or not, now is the time to seek advice on your mortgage.

At this time, when there is uncertainty about future economic conditions, it’s important to understand what your options are. In the past two weeks, we have seen lenders withdrawing products from the market with little to no notice as they look to price in potential base rate changes, coupled with SWAP rates increasing again, now is the time to speak to an adviser.

If you’re coming to the end of your mortgage product in the next 6 months, now is the time to start looking into fixing a new deal in advance. If interest rises during this period, then you will have already secured your rate and won’t need to worry about any impending further rate hikes.

Most mortgage offers are valid for six months, so it is important to make sure you are aware of the time frame when considering switching to a new deal. With a 6 month lead in period to a new mortgage product starting, having an adviser continuously review the market will give you an advantage, this will give you the ability to secure a lower rate should there be any reductions in the lead up to your current product ending. In addition, it’s important to take into account any early repayment charges (ERC) when switching to a new deal as this could have an effect on your budget.

If you don’t do anything then your mortgage will go onto your lender’s Standard Variable Rate (SVR). This means your mortgage payments could go up or down, but in the current economic climate they are more likely to increase. Don’t miss out on the opportunity to save money and discuss with us how securing a mortgage now may be beneficial for your particular situation.


Ready to discuss finding the right mortgage?

We’re here to help find the mortgage that’s right for you. To discuss your requirements, contact a Fairstone adviser today.

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Offset mortgages – an option worth considering

When it comes to buying a home, one of the biggest financial commitments you will make in your life, there are various options for financing your purchase. One such option is an offset mortgage.

Fairstone mortgage adviser, Mark Alexander, explores what an offset mortgage is, why it could be an option for you, and how to go about setting one up.


What is an offset mortgage?

An offset mortgage is a type of mortgage where the borrower’s savings and current accounts are linked to the mortgage. The balance of these accounts is then offset against the mortgage debt, reducing the amount of interest paid. For example, if you had a mortgage of £200,000 and savings of £50,000, you would only pay interest on £150,000.


Why could an offset mortgage be an option for you?

There are several reasons why an offset mortgage could be an option worth considering:


1) Reduce the amount of interest paid

By offsetting your savings against your mortgage, you could potentially save thousands of pounds in interest payments over the life of your mortgage. This is because interest is only charged on the outstanding balance of your mortgage, so the more savings you have, the less interest you will pay.


2) Flexibility

Most offset mortgages offer flexibility in terms of making overpayments or underpayments. This means you can pay more than your required monthly mortgage payment when you have extra cash, or pay less when times are tough. This can be a useful feature for those with fluctuating incomes or who are self-employed.


3) Tax benefits

Unlike with regular savings accounts, you don’t pay tax on the interest earned on your savings when they are offset against your mortgage. This is because the interest is not considered income, but rather a reduction in the interest charged on your mortgage.


How to set up an offset mortgage

While it’s possible to set up an offset mortgage on your own, it can be a complicated process, especially if you’re not familiar with the mortgage market. That’s why it’s often a good idea to speak to a mortgage adviser who can help you find the right offset mortgage and guide you through the application process.

If you’ve decided an offset mortgage is right for you, here’s how to get started:


1) Find a mortgage adviser

Arrange an appointment with a regulated mortgage adviser. As the number one rated wealth management firm on Trustpilot, you can rest assured you are in safe hands with Fairstone. Book a meeting with a Fairstone adviser today.


2) Discuss your needs and goals

When you meet with your mortgage adviser, be prepared to discuss your needs and goals. This will help your adviser to understand your financial situation and recommend the right offset mortgage for you. You should also provide information on your income, expenses, and any other financial commitments you have.


3) Compare offset mortgage products

Your mortgage adviser can help you compare different offset mortgage products and their features, such as interest rates, fees, and flexibility. They will also be able to explain the benefits and drawbacks of each product and how they suit your specific needs.


4) Apply for the mortgage

Once you have chosen an offset mortgage product, your mortgage adviser will help you with the application process. This will involve providing your personal and financial information, such as proof of income and identification.


5) Link accounts

Once your mortgage has been approved, your mortgage adviser will help you link your savings and current accounts to your mortgage. They will also help you transfer the funds you want to offset against your mortgage into your linked accounts.


6) Manage your accounts

Finally, your mortgage adviser will help you manage your linked accounts and make sure you are getting the maximum benefit from offsetting. They can advise you on how to maintain the benefit of offsetting and how to avoid dipping into your savings.


If you’re considering an offset mortgage, get in touch with an adviser today to guide you through the process and ensure you get the best deal for your specific needs.

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Mortgage overpayments – a long-term investment in your future

Overpaying on your mortgage now could be the key to happiness in later years.

In Fairstone’s latest client survey, respondents were asked: “What financial tip/piece of advice would you give your younger self?”, interestingly the results show that mortgage overpayments was one of the most common themes.

A mortgage is a significant financial commitment, and often the largest debt you’ll ever take on. But did you know that by making overpayments on your mortgage, you could potentially save thousands in interest, pay off your mortgage sooner, and reduce financial stress?


Fairstone mortgage adviser, Moira Ness , explores the benefits of overpaying on your mortgage and why it’s a smart financial move for many homeowners.

Paying off your mortgage faster

One of the most significant benefits of overpaying on your mortgage is that you’ll pay it off more quickly. This means you’ll be debt-free sooner, and you’ll have more money to put towards other things.


Saving money on interest

The interest on your mortgage is the cost of borrowing money from the lender. When you overpay on your mortgage, you reduce the principal amount of the loan, which means you’ll pay less interest over time. This can result in significant savings, especially if you make regular overpayments.


Building equity in your home

Equity is the difference between the value of your home and the amount you owe on your mortgage. By overpaying on your mortgage, you’ll build equity in your home more quickly, which can be valuable if you want to sell your property in the future.


Reducing financial stress

Having a mortgage can be stressful, especially if you’re struggling to keep up with the repayments. By overpaying on your mortgage, you’ll reduce the amount of debt you have, which can help to alleviate financial stress.


Freedom to retire early

If you’re nearing retirement age, overpaying on your mortgage can be a great way to become debt-free before you retire. This means you’ll have more disposable income during your retirement years and less financial stress.


Increased flexibility

By overpaying on your mortgage, you’ll have more flexibility if your financial circumstances change. For example, if you need to move to a new home, you may be able to afford a larger deposit or qualify for a larger mortgage because you’ve built up equity in your current property.

If you have the means to make overpayments, it’s definitely worth considering. However, before you do, it’s always a good idea to check with a mortgage adviser to ensure that there are no penalties or fees associated with making extra payments.

Get in touch with a Fairstone mortgage adviser today to find out more.  

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Growing wealth held in property

Importance of the role of property wealth in retirement planning 

Property wealth can play an important role in a retirement strategy, providing a source of income and capital growth, and this has been highlighted in new research which has revealed the increasing importance of the role of property wealth in retirement planning[1].

The research looked into levels of spending, saving and attitudes towards funding retirement in the over-45s, and follows a similar survey run in 2016[2]. The study also looked at property, and whether the thriving market has affected people’s attitudes towards their property wealth, as well as whether there has been more mobility driven by the ability to capitalise on increasing property wealth.

Compared with six years ago, there has been a decrease in property ownership, either outright or with a mortgage, particularly in the younger age groups in this sample. In 2016, nearly a quarter (23%) of 45-54-year-olds owned their property outright, and that has fallen to 16% in 2022. For 55-64-year-olds, the respective numbers were 48% and 45%.


Property asset values

Overall, this indicates that mortgages are being paid off later than they were six years ago. As people get older, more own outright – in 2016, 13% of 65-74-year-olds owned with a mortgage, compared with 9% in this age group this year.

Length of tenure in the same property has remained more or less constant over the last six years, at just under 20 years, compared with 21 years in 2016. In 2002, when people bought their house, the average house price in the UK was £101,000, so this age group have seen a significant increase in the value of their property assets.


Housing market boom

Those who own outright have typically been in their property longer – 22 years, compared with 16 years for people who own with a mortgage – so the mortgage-free have also benefitted from an additional six years of property price rises, building up the equity in their home.

Average house prices have gone up for this age group, and now stands at £287,000, from £264,000 in 2016 – an increase of 8% – and is continuing to rise[3]. The effect of housing price rises is even more marked for the older age groups, particularly for those who bought their current property before the housing market boom of the late 1990s.


Accumulated property wealth

The average house value of the 75+ age group in the survey is £310,000 and the average length of time they have lived there is 28 years. In 1994, when they bought their property, the average house in the UK cost £54,623, which represents a five-fold increase in equity.

The picture is also positive for the 65-74-year-olds – their average tenure is 24 years, buying their current house in 1998 when the average cost of property was £66,231. Today, this age group’s property is worth, on average, £302,000. This accumulated property wealth, resulting from the growing housing market in the UK, will for most far outstrip the resources they have in savings and investments.


Planning later life finances

Taking into account the average outstanding mortgage still owing, the research highlighted the amount of equity people typically have in their property is just under £195,000. This compares with the average held in savings and investments, of £52,000 and shows the importance of considering all sources of wealth when planning later life finances.

It’s likely that people have accumulated more wealth in their property assets than they realise, and looking at ways of utilising this in planning for retirement could have a significant impact for them. It’s an important factor to consider when looking to plan for a comfortable retirement.


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[1]Aviva research conducted by Censuswide April 2002 – 1507 general consumers aged 45+

[2] Aviva Real Retirement Report conducted by ICM Unlimited April 2016 – 1506 general consumers aged 45+

[3] HMLR’s UK House Price Index