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Interest rates & my mortgage

With interest rates on the rise, we are frequently being asked “what does this mean for my mortgage?”.

For those fortunate to have taken out longer term fixed rates over the last 2 years, they are probably feeling very happy with their decision as only 9 months ago, a 5-year fixed rate of less than 1% was possible if sufficient deposit or equity was available.

For those who have rates expiring over the coming 2 years, the position is less rosy, knowing that they will be moving onto rates available in the market that, in all likelihood, exceed the rate they currently find themselves on.

How has there been such a change in a matter of months?

Back in October 2021, interest rate movement was benign. Bank of England Base rate was 0.1% with no suggestion of changes on the horizon as we exited the pandemic jaws and re-opened all aspects our economy. Little did anyone know of the headwinds that 2022 would have in store.

The invasion of Ukraine has certainly contributed significantly to the overall figures; however, other factors include: covid still having a hold on various countries; supply chain capacity still yet to return to pre-pandemic levels combined with increase household demand; fuel costs on the rise; energy price caps; as well as the flood of world stimuluses during the pandemic provided by central banks to support their domestic economies.

With all of this at play and inflation now in excess of 9%, Bank of England are having to take steps to reduce this in line with their long-term goal of 2%. This has led to swift action of raising central interest rates from their historic low of 0.1% in November 2021 to now 1.25% in June and there is more to come. Many economists and financial institutions are suggesting another 0.5% rate rise will be made in August with further rises throughout the remainder of 2022. Quite how far they will continue to go is very much up in the air though most agree, they will stop between 2.5% and 3.5%.

Mortgage markets naturally price for the worst and will adapt based on better news, if it arrives, resulting in extensive rate hikes. As a result, we have seen 2-year mortgage rates increase from 0.89% to now 2.64% while the 5-year market has risen from 0.96% to 2.99%. Whether further mortgage rate rises continue, we will have to see but it cannot be ruled out.

For anyone whose mortgage rate expires over the coming couple of years, have a look at the terms of your existing mortgage; identify the existing rate; your early repayment charges and when they expire.

Many mortgage lenders now provide mortgage offers with a 6-month validity. We would absolutely recommend acting early and quickly, so even those with mortgages up for renewal in early 2023, can potentially secure a product at today’s rates to put in place when the existing rate expires.

With lenders frequently withdrawing rates, seeking advice from a broker and proceeding quickly on any recommendation is essential to ensure you can secure the best products available on that day.

Content correct at the time of writing and is intended for general information only and should not be construed as advice.

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