A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The Bank of England base rate, currently stands at 3%, its highest level in more than 13 years, and analysts expect that it will continue to increase to 4.75% over the course of 2023. The question in the mind of many analysts and mortgage borrowers is however if interest rates will continue to increase even further beyond this point, and what will it mean for mortgage rates in the long term?
How interest rates affect mortgage payments and affordability?
There is no simple answer to this question as it depends on a number of factors, including the health of the economy, the unemployment rate, and more importantly the inflationary pressure. As a gleam of hope, the Bank of England governor announced on 3 November 2022 that: “From where we stand now, we think inflation will begin to fall back from the middle of next year, probably quite sharply.”
However, he also added that: “To make sure that happens, bank rate might have to go up further over the coming months.”
As a consolation token to borrowers, he went on to say: “We can’t make promises about future interest rates. Based on where we stand today, we think bank rate will have to go up by less than currently priced in financial markets. And that’s important because, for instance, it means that the rates on new fixed-term mortgages should not need to rise as they have done.”
The Bank of England governor added that the recent increase of the Base rate to 3% “should not lead to higher mortgage rates”. These comments offer at least some good news in that borrowers would hope that once they will need to remortgage, fixed mortgage rates may not increase as much any longer.
Financial markets now predict that in 2023 the Bank of England Base rate will peak at 4.75%, which is less than a previous forecast of 5.25%.
However, any borrower still faces much higher interest rates than just a few months ago.
Fixed rate deals are on a range of 5.3% to 6%+, depending on whether the rate is fixed for 5 years or for 2, and also depending on the loan to value (LTV). Tacker and discount rates start at just over 3%.
Irrespective, these are materially higher rates when compared to just a few months ago at the beginning of 2022, adding to the cost of a mortgage.
Luca Bertolino, founder of Your Mortgage Experts comments “The era of cheap interest rates is unfortunately behind us. We have enjoyed over a decade of ultra-low interest rates which we all got used to, and which we all thought had become the norm upon which to budget for things like the cost of a mortgage or personal finance. However, this is not the case any longer and re-adjusting to the new higher interest rates will inevitably prove painful for borrowers, especially as this is happening at a time when we are all already going to feel the impact of higher energy bills and higher cost of living”.
Mortgage advisers have seen a spike in their enquiries from borrowers concerned about their monthly payments and are keen to understand the impact on their finances and any options available. Borrowers that had recently secured a long-term fixed rate, can remain more relaxed for the time being. Furthermore, borrowers that have the ability and the means to make some capital overpayments to their mortgage, may benefit from doing so, to reduce their monthly payment, to mitigate the impact of any monthly payment shock once their current deal jumps to a higher rate. Before making capital over repayments, it is always good idea to check first if early redemption charges apply, and borrowers will want to make sure that they retain some savings on the side as “emergency” for any unforeseen. And it is always a good idea to speak to a mortgage adviser to discuss best options and budgeting.
This helpful mortgage calculator can also help work out the mortgage monthly payment based on different level of interest rates as well as different level of mortgage amounts.
Luca Bertolino also adds that “It is a good idea to start looking for the next mortgage deal 6 months before the current rate deal ends, in order to understand the new level of monthly payments, review the options available with mortgage rates, and the budget implications”. A mortgage offer is typically valid for 6 months, and a new product deal can be reserved once a new mortgage application is submitted to the lender.
In the current environment, planning and budgeting of family finances will become more and more important. Anyone unsure about how their finances may be impacted, will benefit from a conversation with an experienced mortgage adviser, that can review their situation and discuss best available options with their mortgage finance.
“The role of financial advice will return very much centre stage, with mortgage borrowers more and more requiring sound mortgage advice and planning”.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
About Your Mortgage Experts With the guidance of experts like Luca Bertolino, Your Mortgage Experts has become a trusted adviser clients have come to rely upon for all their mortgage and protection needs. Your Mortgage Experts is an appointed representative within the Tenet Group, a leading financial advice network in the UK. Your Mortgage Experts helps a variety of clients: first-time buyers, moving home, remortgaging, and those investing in buy-to-let. Your Mortgage Experts has an experienced and professional team that promises to match clients with the best mortgage possible for your circumstances while providing impartial expert advice and focusing on lenders and providers whose underwriting criteria that will suit a client’s needs. Four out of five people seek advice from a broker, and many come to Your Mortgage Experts for the quality of the advice and expertise provided. For more information about Your Mortgage Experts, please go to https://yourmortgageexperts.co.uk/
Luca BertolinoMortgage Expert
Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.