In the UK, mortgage rates have reached their highest level in almost a decade and a half, and other interest rates are also skyrocketing. Here's what you need to know, from our friends at CMME.
Since at least 100,000 people have fixed-term mortgage deals due to end in 2022, with many more hoping to get on the property ladder this year, these increased rates have a considerable impact. Plus, the economic climate has now reached a stage of uncertainty at which lenders have stopped or paused hundreds of mortgage deals and product offerings.
Will your next mortgage be affected by rising interest rates? Most likely. In this article, discover everything you need to know about why things are changing and what you’ll have to consider, whether you’re a mortgage holder or a mortgage hopeful.
The economic situation explained
From COVID-19 to Russia’s war on Ukraine, the global economy has taken some significant hits since the start of 2020. Inflation is proving challenging to curb, and interest rates are being increased repeatedly in an effort to do so. In Britain, it all starts with the Bank of England base rate, which is approaching its 8th consecutive price hike.
Political turmoil certainly hasn’t helped. Now-resigned Prime Minister Liz Truss’s recent mini-budget announcement, for example, sparked an adverse reaction on the international financial stage and triggered a sharp inflation increase in an already increasingly untenable economic climate.
Though the future is unclear, there’s one thing most experts seem to agree on. None of this is going away in the near future, and further increases are highly likely.
Therefore, proper mortgage planning is more essential than ever...
Key considerations for first-time buyers
Taking the leap versus waiting it out – there are no guarantees about what the future may hold, but it’s safe to say that the current mortgage climate is less than ideal. Have you considered waiting the two or three years experts suggest it will take for the market to calm? Do you think things will be improved, by this point, to a degree that makes waiting worth it?
Reduced availability of deals and options – as briefly mentioned, many lenders have reduced their slate of mortgage products in response to economic uncertainty. Ensure you’re planning for your mortgage effectively, considering the deals and rates available here and now rather than the deals that might have been available three or four years ago.
Useful features for the future – it’s incredibly easy to ignore the longer-term details of a mortgage contract, as they don’t feel relevant to you. But factors like the mortgage term length and the level of freedom (or lack thereof) to overpay can make a lot of difference in reducing the amount of interest you need to pay and the amount of debt you incur.
Key considerations for current homeowners
Setting realistic expectations (and planning for them) – you’ll probably find you can’t avoid an increased monthly repayment. Although you can take steps to minimise the increase and find another good mortgage deal when yours is coming to an end, prices are rising, and you will see that. Plan to accommodate higher costs, and you’ll be less knocked off course when you have to.
Variable versus fixed – choosing your mortgage type has always been a case of weighing up the pros and cons, but in times of economic uncertainty, when interest is spiking, more and more people are choosing a fixed rate if they can find one. (Just remember that if interest does drop again soon, you could be stuck at a higher fixed rate for a few years.)
Avoiding unnecessary expenditures – amid a cost of living crisis, our monthly mortgage payments aren’t the only things costing more. Financial commitments and expenditures must be carefully considered when the price of everyday life is high, including potential second home purchases or purchases of larger homes that will need larger mortgages.
For accountancy services, advice and employment umbrella options, get in touch with one of our experts. We’re well-equipped to take the headache out of financial management in all areas of your life.