Over the last 6 months or so, most mortgage borrowers will have seen a significant mortgage payment increase. This is because the current economic climate has made mortgage lenders increase their mortgage rates from record lows. For those lucky enough to have secured a 5+ year fixed term rate before the mini-budget announced in September 2022, you will be able to enjoy another few more years of low interest rates or perhaps 1.5% to 2.5%. However, for those getting mortgages after September 2022 or thinking of getting a mortgage in the next 12 to 18 months, you will be looking at standard average rates of at least 3% but more likely closer to 4.5%.
Mortgage Payment Increase Expected?
In September 2022 it was announced that the Bank of England would start raising their base rate in an attempt to tackle a rising inflation which was spiralling out of control. Several subsequent base rate increases have happened in the months following this and now the base rate sits at 4.25%. A rise in the base rate has menat that many things in the UK have gotten more expensive, including mortgage interest rates which reached peaks of almost 8%. They are now around the 3-4% mark.
This week, new data revealed that despite the Bank of England raising interest rates significantly, inflation has only dropped a small amount and still remains in double figures. To many, this pretty much confirms that the bank will likely raise the base rate even more, by either 0.25% or 0.50%. What could this mean for borrowing? Well, it could of course mean that mortgage lenders will be forced to raise interest rates again. That is the worst case scenario, but not a certainty. As we have already seen, despite rising interest rates in the last few months, mortgage lenders have continued to cut their rates rather than increase them. Many industry experts are however taking bets on whether this trend will continue, or whether we could see a mortgage payment increase again.
What Is Expected?
Melissa Lawford and Szu Ping Chang, writing for the Telegraph, report that nearly three million homeowners could face an extra £1,000 in mortgage costs this year if interest rates go up. They say:
‘Investors now expect a 5% peak in the Bank of England base rate this year, as higher than expected March price data has undermined the Bank of England’s credibility and will push its Monetary Policy Committee to make further rate rises. The predicted peak is half a percentage point higher than at the start of April. Analysts have warned of a corresponding half-point increase in mortgage rates that would cost a typical homeowner £1,000 per year.’
So what does this mean exactly? Mortgage interest rates are fuelled by the Bank of England’s base rate. If the base rate increases, it means that the lender’s profit margins become more narrow and they need to increase their own asking interest rate, in order for lending money to make any financial sense at all. If the base rate reaches 5% by this year, it will mean that lenders will need to offer rates above 5% to make it worth while.
What Can I Do About Rising Mortgage Interest Rates?
Unfortunately we can’t wave a magic wand and force lenders to keep their rates down, but what we can do as mortgage advisors is help you get the right mortgage product and rate that suits your circumstances. If you feel like you are struggling to pay your mortgage on the rate it currently is, we can look into your financial situation and can potentially help you to re-structure or replace your current mortgage loan to a more manageable one for you with a product transfer or a remortgage. Call our team today if you would like to discuss rising mortgage interest rates. Our initial mortgage consultation over the phone is completely free charge.