You may have heard about rising interest rates and be concerned about whether they will continue to increase. Here’s what you need to know…
The recent Bank of England base rate changes have been reported regularly in the media, with many homeowners and potential buyers aware of the consistent increases that have occurred since last December.
A base rate increase will affect your monthly mortgage payments if you’re on a tracker rate mortgage and possibly also if you’re on a standard variable rate if the lender chooses to pass on the increase. It won’t affect your monthly payments if you’re on a fixed rate deal.
The Financial Times recently reported that UK mortgage rates increased at their fastest rate for a decade from six months to May. This came from data from the Bank of England. Interest rates available to borrowers right now have risen since November by more than the Bank of England base rate. You may wonder why. ‘This is simply because it’s costing lenders more to borrow money than it did previously because swap rates – which indicate how much it costs lenders to borrow money – have increased more than the Bank of England base rate,’ says Phil Leivesley, MB Associates’ Sales Manager.
What does the future hold?
Are rising rates likely to be a long-term situation? It’s difficult to make predictions, but it seems almost certain that interest rates will continue to increase in the short term. However, it does appear that the market believes the increases may possibly be less than previously anticipated. We may have the Bank of England to thank for that.
Phil says: ‘The markets believe that the work the Bank of England has done in increasing rates is likely to have the desired impact in slowing the economy and reducing inflation and that we’ll return to more “normal” borrowing costs a little sooner than we might imagine. This also means that the anticipation for the number and amount of rate rises from the Bank of England is likely to be less than we might have previously feared.’
That said, none of us has a crystal ball, and unpredictable situations can arise and affect rates. ‘Predictions show we’re likely to see rates continue increasing for the next 12-18 months before levelling off and potentially falling in the future,’ adds Phil. ‘It’s all a bit of a moveable feast, though, and an almost endless list of factors can affect rates. For example, few might have expected a war in Europe and rapidly increasing energy and commodity prices a couple of years ago. These have had a seismic impact on swap rates recently.’
So, what should you do if you’re worried about your mortgage? It depends on your situation. If you’re nearing the end of a fixed rate mortgage term, you might want to consider securing a fixed rate deal for a five-year term to give you peace of mind.
If you don’t have a mortgage but would like to apply for one in the near future, ensure you have all your paperwork ready, so your mortgage broker can shop around promptly on your behalf. This is especially important as lenders are withdrawing some of their most competitive mortgage products at very short notice.
It’s important to seek advice from a reputable broker so that you can explore all of your options. Brokers have access to mortgage products not always available directly to consumers, so it’s well worth a conversation. We’re here to help if you need advice.