Over the past few years, borrowers have been lucky enough to benefit from extraordinarily competitive and low interest rate mortgage opportunities. However, the fallout from covid and other impacting economic influences saw the Bank of England’s (BoE) rate-setting Monetary Policy Committee (MPC) begin increasing interest rates from December 2021. Today they announced an increase to 1.75%, up 0.5% which is the biggest point hike since 1997. In these times of austerity, it’s no surprise we have been subject to mortgage interest rates increasingly rising in an attempt to help counteract soaring inflation.
For borrowers, an increase in rates will result in higher outgoings. We therefore urge borrowers to consider how rising interest rates may affect your ability to successfully pay your mortgage payments. Below, we outlay some points to consider.
How will the rate increase affect my mortgage payments?
For those in a fixed mortgage your payments will not change. However, ensure you are aware of when the fixed period comes to an end and make sure you speak to your mortgage adviser in good time to secure a competitive rate.
If you have a loan or mortgage that charges you a variable interest rate – an SVR mortgage – which is linked to the BoE base rate, you will likely find an immediate increase on your payments. Experts analysing this increase have said that repayments on the typical mortgage have now increased by hundreds of pounds per year since the base rate rises begun.
Those on an SVR mortgage will probably see an increase to their rate aligned to all interest rate rises. However, how much is decided by your lender, so this isn’t a guaranteed amount. If you are unsure, speak to a mortgage adviser and check the original mortgage T&Cs in your original mortgage offer document.
Alternatively, if you have time left on your current deal, it may also be worth considering a product switch. Whilst you may have to pay some early repayment fees, the savings may outweigh the fees.
Can I afford the increase in my mortgage payments?
How you’ll personally be affected depends on what type of mortgage you have and when your deal comes to an end. But if your mortgage repayments are increasing, we suggest calculating your outgoings with the increase and looking at your overall affordability.
There are a multitude of tools available to help if you would like to review your personal finances. Speaking to a financial adviser or creating your own budget planner may be good places to begin.
One advantage of the increasing base rate is personal savings interest rates will likely increase too. All the while your mortgage payments may continue to increase, if you remain on an SVR mortgage, having a buffer of personal savings may be worth considering.
Can I change the type of mortgage I’m on?
Are you concerned about your increasing mortgage payments and what impact they’ll have on your finances? Speaking to a mortgage adviser can help to identify potential opportunities that may relieve the severity of the situation. For example, you may be eligible for a different product which can help reduce monthly payments and protect against further rate rises. Be it residential mortgages, remortgages or bespoke high value loans we can help.
Our expert team can also look at your affordability and make sure you are on the most suitable deal for you. If you have not reviewed your mortgage recently, now is a good time to do so. There are deals to be had by borrowers by switching lenders to more preferential rates.
Keen to discuss your mortgage options? Speak to a member of our team on 020 3903 9875 or email enquiries@ldnfinance.co.uk where our advisers will get back to you shortly.
(Information correct as of 4th Aug 2022)