With inflation and interest rates on the rise, the era of record-low mortgage rates looks to be nearing an end. But what does this mean? How does this impact monthly payments and what can you do to get the best rates before it’s too late?
What has happened?
Inflation (the cost of general goods and services) is being driven up by the worldwide shortage of supplies following a return to trading after the Covid lockdowns. Currently, the inflation rate stands at 3.1% which is significantly higher than the 2% target set by the Government and this is predicted to increase further in 2022.
What does this mean for interest rates?
It has been announced recently that the base interest rate will remain at its historic low of 0.1% for the time being but all eyes are on the next review date on 16th December, as to whether a rise in interest rates will be implemented.
Interest rates are used as a tool for the Bank of England to curb rising inflation. If the cost of borrowing increases, people are less inclined to borrow. This reduces the demand and hence lowers prices again.
As inflation is on a rise, it is expected that the Bank of England will amend the base rate to compensate, with economic indicators suggesting that it could reach up to 1% by the end of 2022.
How does this affect different types of mortgages?
Homeowners with tracker mortgage deals will see an immediate increase in their monthly payments as their rate is linked directly with the current interest rates. Those paying standard variable rates won’t be too far behind as lenders adjust their rates accordingly.
Borrowers part way through a fixed rate deal won't be affected by an interest rate rise initially until their current offer ends. However, predictions are that the cost of servicing a mortgage could grow by 5.6% next year and 13.1% the year after. If these are correct, borrowing £250,000 on a 2 year fixed-rate mortgage, could increase by up to £600 per year when remortgaging in 2023.
Act now, we can help.
We asked our mortgage and equity release specialist, Caroline for advice on mortgage interest rates rising:
“The Bank of England rate has stayed the same at the moment; however, with inflation rising it is inevitable that it will go up at some point. The key will be to secure a better or equivalent deal before the rises start to significantly affect household budgets.
We negotiate mortgages every day for first-time buyers and those looking to switch to a better deal. We’re not tied to any particular mortgage lender, so we’re able to offer independent and unbiased advice.”
To learn more about our mortgage services or to book an appointment with the team, see our website.