Homeowners are being urged to check for cheap mortgage deals now, ahead of a predicted interest rate rise this week.
Markets are expecting the Bank of England to hike its base rate from 0.25% to 0.5% tomorrow (February 3) when the Monetary Policy Committee meets.
The base rate is what the BoE charges other banks and lenders.
This in turn then influences the rates these other lenders charge to people when they borrow money, and how much they pay in return when someone invests savings.
Whether an interest rate hike would affect your mortgage depends on what type of deal you have taken out.
But for those on a tracker mortgage could end up seeing their repayments go up by hundreds of pounds a year.
This is because the interest applied to a tracker mortgage moves in line with the base rate.
Laura Suter, personal finance expert at AJ Bell said: "Anyone on a variable rate mortgage will see their interest rates go up – mortgage companies are very quick to pass on the base rate hike.
An increase this week to 0.5% would mean paying an extra £384 a year on a £250,000 variable rate mortgage and £684 on a £450,000 loan, she said.
“The current market expectations are that the base rate will rise a total of four times this year, taking it to 1.25% before the end of 2022,” Ms Suter warned.
“If this is the case, homeowners with £250,000 of borrowing will have to pay an extra £1,560 a year, or £130 a month, while those with £450,000 of borrowing will have to find an extra £2,808 a year.”
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Those who are on a standard variable rate (SVR) mortgage may see rates increase, as it'll be down to your lender to decide whether to pass on the increase to its customers.
You'll usually be on an SVR type mortgage deal after your fix or tracker rate ends.
If you have a fixed-rate mortgage, your rates won't change - although you may want to consider locking into a cheap deal now if your current mortgage is due to expire.
Most mortgage lenders will let you take out a new loan three to six months before your current one ends.
How to compare mortgage deals
Homeowners will need to act fast to lock into a cheap fixed-rate deal.
In December the BoE hiked the base rate from 0.1% to 0.25% - but mortgage rates started rising in October in anticipation at many banks.
Borrowers should use a mortgage comparison to check whether you are on the cheapest deal - we've got a guide on how to find the best rates here.
When thinking about the switch remember to factor in any other costs and check if there is an early exit fee associated with your current deal.
Ms Suter says it is possible for some homeowners to save more than £2,000 by locking into a cheap deal now.
This is based on someone switching from a repayment mortgage with a 25-year term, at the current average variable rate of 2.47%, to the top two-year fix of 0.99% from Natwest, on 80% loan-to-value.
“Mortgage companies have already started to increase their rates, and they’ll rise again once a rate rise actually happens,” she said.
“Someone with £250,000 of borrowing on the average variable rate mortgage now could save £2,124 a year by switching to the current top two-year fix.
“If rates rise to 0.5% they would save £2,892 a year. If someone wanted to switch for longer they’d save less each year, but more over the term of the fix.”
