May 11th, 2023
In a move aimed at curbing persistently high inflation, the Bank of England has recently raised mortgage interest rates by a quarter of a percentage point to 4.5%. This decision marks the latest in a series of rate hikes and has significant implications for borrowers and homeowners across the UK. In this blog post, we will discuss the implications of the latest mortgage rate increase and provide guidance on how to navigate this changing landscape.
Understanding the Rate Hike:
The decision to raise mortgage interest rates reflects the Bank of England’s commitment to addressing double-digit inflation. With rates now at their highest level since the 2008 financial crisis, the central bank is taking a proactive stance to control rising prices and maintain economic stability.
Impact on Borrowers:
The increase in mortgage rates has several implications for borrowers. Firstly, it means that the cost of borrowing will rise, potentially impacting the affordability of mortgages and loan repayments. Homeowners and prospective buyers need to assess the impact on their financial situation and plan accordingly.
Fixed-Rate Mortgages:
If you have a fixed-rate mortgage, the interest rate increase will have no immediate impact on your current deal. Your fixed-rate terms remain unchanged until the end of the agreed-upon period. However, it’s worth noting that if you’re nearing the end of your fixed-rate term, you may want to start exploring new mortgage deals. Over the past year, fixed mortgage rates have risen significantly, making it prudent to secure a new deal sooner rather than later.
Standard Variable Rate (SVR) or Discount Mortgages:
Lenders have the discretion to raise SVR mortgages or discount mortgages following an interest rate increase. SVR mortgages are typically what borrowers transition to after their fixed-rate or tracker mortgages end. The current average SVR is 7.74%, and it is likely to rise in response to the recent rate hike. If you are on an SVR or a discount mortgage tied to the SVR, it’s advisable to evaluate your options and consider remortgaging. By switching to a new mortgage deal, you may be able to secure a lower interest rate and potentially save money. Seeking guidance from a mortgage broker can help you navigate the available options and find the most suitable deal for your circumstances.
Tracker Mortgages:
Tracker mortgages are directly tied to the base rate, meaning your mortgage costs will increase following an interest rate hike. The recent rate increase translates to approximately a £14 monthly payment increase on a £100,000 mortgage. If you’re concerned about future rate rises, it’s wise to assess your situation and consider switching to a fixed-rate mortgage or exploring alternative tracker mortgages with more favorable terms. Remember to review your current mortgage terms to determine if there are any penalties associated with switching or remortgaging.
What next for your mortgage?
Your actions will depend on the type of mortgage you currently have and your proximity to the end of your initial mortgage term. Here’s a breakdown of potential actions based on different scenarios:
- Fixed-Rate Mortgages: Your existing deal remains unaffected but consider searching for a new mortgage deal if you’re close to the end of your term.
- Standard Variable Rate (SVR) or Discount Mortgages: Explore remortgaging options to potentially save on interest costs. Consult with a mortgage broker to discuss the best course of action.
- Tracker Mortgages: Evaluate whether switching to a fixed-rate mortgage or exploring other tracker mortgage options is beneficial for your circumstances.
Considerations for First-Time Buyers:
For those planning to enter the property market, the rate increase necessitates careful planning and consideration. It is important to assess your affordability, considering the higher interest rates and potential future increases. Utilising mortgage calculators and seeking advice from professionals can help you determine a budget that aligns with your financial capabilities.
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Expert Guidance from CMME Mortgages:
In times of changing interest rates, partnering with a trusted mortgage advisor is essential. CMME Mortgages offers expert guidance and personalised solutions tailored to your specific needs. Our team of mortgage specialists can analyse your financial situation, provide comprehensive advice, and help you secure the most suitable mortgage option in the current market.