Mortgages are becoming more and more expensive. People who have fixed rates are protected for now as their payments won’t rise whilst in their initial deal. However, as inflation continues to rise, everyone with a mortgage will eventually see an increase in their monthly payment. People on variable rates will already see an increase in their payments.
A record £328 billion worth of fixed-rate mortgages will come to an end this year, leaving those homeowners facing big rises in their repayments.
The Bank of England has just increased its base rate to 1% and according to the Chancellor of the Exchequer, the base rate could rise to 2.5 per cent by the end of the year.
The impact on mortgage repayments
If you have a tracker mortgage or are on a standard variable rate (SVR), your repayments will be effected. This is because an increase in your lender’s base interest rate usually follows any increase in the Bank of England’s base rate. A 0.25% percentage point rise in rates would translate into approximately an additional £26 per month mortgage payment on average for a tracker rate customer and £16 for the typical borrower on SVR, depending on the amount borrowed3.
The immediate good news is that if your mortgage is on a fixed rate, your monthly repayments will be unaffected for as long as your fixed term lasts. Once the fixed rate comes to an end though, going back onto your lender’s variable rate may provide considerable payment shock if the Chancellor’s prediction is realised.
Act now to avoid an unwelcome surprise
Because of the uncertainties in the financial markets and the wider international economy, further rate increases cannot be ruled out. Whatever your mortgage type, we strongly recommend you look at the terms of your mortgage and contact your mortgage adviser before taking any further action.
It is likely that you will be contacted by your current lender offering advice, or other intermediaries too. As your trusted advisers, we would recommend speaking to us first. We will assess your current circumstances and search across the whole of the market for the most suitable deals that are most applicable to your individual mortgage and protection needs.
Sources
1 – Nixon, G. (2022) Mortgage rates are heading up and here’s what you should do. Available at: https://www.thetimes.co.uk/article/mortgage-rates-are-heading-up-heres-what-you-should-do-5tp7ts3q3 (Accessed 24th May 2022)
2 – Adams, G. (2022) Sunak expects interest rates to hit 2.5%. Available at: https://www.mortgagestrategy.co.uk/news/sunak-expects-interest-rate-to-hit-2-5/ (Accessed 24th May 2022)
3 – Cornes, C. (2021) How the Bank Rate Affects Mortgage Rates. Available at: https://www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates (Accessed 24th May 2022)
