Mortgage Costs Could Be Set To Rise

8 February, 2018 | News

What is it?

The Term Funding Scheme (TFS) was introduced by the UK government in August 2016 and was designed so Banks and Building Societies were forced to pass on the Bank of England’s 0.25% interest rate cut to its customers; enabling cheaper lending and mortgage deals.

Lending institutions took full advantage and over £100 billion has been borrowed since the schemes inception.

Why is it ending?

The scheme was only due to last 18 months having being implemented after the EU referendum in 2016.

It will end on 28th February 2018.

What does it mean for me?

Millions of UK homeowners on lenders Standard Variable Rate (SVR) are now facing a rise in mortgage costs without the official Bank of England base interest rate increasing.

The ending of the TFS has also sparked fears that the first-time buyer or those looking to remortgage when their current fixed rate deal comes to an end, will face the higher mortgage deals as they feed through onto the market.

There is a question mark around whether the Banks and Building societies will be able to replace the lending as cheaply as before as macro-economists predict that this will not be achievable.

Predictions are that mortgage rates will jump by around 0.25%  after the TFS closes.

However, some analysts believe that deposit rates will rise to boost savers in a tightening of the liquidity market.

How much more will my mortgage cost?

Below is a basic guide to the increase that both a £150,000 and £300,000 mortgage would roughly see:

Current SVR £150,000 mortgage monthly repayment £300,000 mortgage monthly repayment New SVR Monthly increase (£150k) Monthly increase (£300k)
3.99% £790.93 £1,581.85 4.24% £20.84 £41.68


Can I avoid the increase?

Using a 3.99% SVR as an example;

  • A £300,000 mortgage would see a £41.68 increase per month, £500 increase per annum or £2,501 over five years.

If you’re worried about the potential impact the Term Funding Scheme might have for the best rates on the market, it could be worth you signing up for a fixed-deal instead so you can protect yourself from any rate rises coming up.

A fixed-rate deal is where the interest is fixed for a length of time, which typically last two or five years.

To find the best deals on the market, contact us and speak to someone in our mortgage team who will not only help you find a deal but will guide you through the entire product switch/remortgaging process.

 

Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.

Future Asset Management LLP will charge £0 for a product switch and £247 for a remortgage.

Source: “Mortgage costs could rise as cheap funding tap turned off.” T. Wallace and T. Rees, The Telegraph, 2018.

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