I was recently asked to comment on the news that the Bank of England base rate was increasing and what the effect would be on mortgages. It is worth noting that although the interest rates have increased, they are still really low compared to what they have been historically and there are still many options available to you.
Q: How will the base rate impact homeowners with mortgage payments?
A: The Bank of England is predicting that inflation will rise above 13% in the autumn and the market is therefore pricing in further base rate hikes in 2022.
The latest rise on the Bank of England base rate was the highest rate increase in 27 years. The immediate impact of these measures is the increase in the cost of borrowing money.
At the end of 2021, lenders were offering rates below 1% for a 5-year Fixed rate at 60% loan-to-value. Now you would be looking above 3%, meaning that a £100,000 loan on 25 years would cost over £100 more per month.
This, coupled with the cost of living, particularly gas and electric and fuel, will result in families having less disposable income and things will feel particularly squeezed.
Q: Is there a way to mitigate the hard impact?
A: Yes! A lot of clients are choosing to fix for longer on their mortgages such as 5 years, or even 10. This enables financial stability so that they can budget accordingly.
However, you must bear in mind that if your circumstances were to change and you needed to exit the fixed rate you could get penalised for this which could outweigh the savings.
Although the interest rates have increased, historically they are still low. Therefore, if you are worried about whether the rates will become unaffordable it could be better to fix for longer. At least then you know it’s at an amount you are comfortable with. I do feel reviewing your mortgage is important right now to mitigate any further increases. It is very difficult to predict exactly what will happen, especially with the current political uncertainty around the future Prime Minister which is also a cause for concern as both candidates have different views on how they would handle the economy.
Speak to me about your options today.
Note: Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
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