Are mortgage rates going up? What inflation and interest rate rises mean for your payments

5 mins read

[ad_1]

Mortgage rates reflect the interest rate set by the Bank of England, which has recently been increased in an effort to tackle the skyrocketing inflation rate. At the start of the coronavirus pandemic, interest rates dropped to 0.1 percent – the lowest-ever rate in the UK. The rate stayed at the historical low until December 2021, when the central bank began the first of incremental increase to 0.25 percent.

Interest rates now sit at 0.75 percent – still comparatively low – and is due to rise further throughout the year, with a decision on interest rates taken roughly every six weeks.

The Bank of England is keen to prevent inflation from rising even further, amid forecasts it could reach eight percent later this year.

The Bank’s chief economist has warned that more interest rate rises might be needed to curb inflation but what does this mean for your mortgage?

Are mortgage rates going up?

Yes – mortgage rates will always rise if the bank’s base rate is increased. If you are on a variable rate mortgage deal, your rate will increase in line with the Bank of England’s changes.

Those on fixed deals won’t be affected by the changes, but when your fixed term ends, you will be subject to cost changes set by the base rate.

READ MORE: Martin Lewis warns there’s just two days left to get free £175

Inflation is making your money essentially worth less than it was before – so coupled with the cost of living crisis, your mortgage will now certainly feel like it is taking away a larger chunk of your spending power.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown: “The cost-of-living crisis is escalating quickly with almost a quarter of people having trouble in paying their household bills.

“Pretty much everyone is feeling the pinch but those on lower incomes are particularly badly affected with prices rising fastest on life’s essentials such as food and heating bills.

“So far, the current situation hasn’t translated into people falling behind with rents or mortgages – only around 3 percent of people have reported this, a figure that has remained largely stable.

“However, this could be because people are burning through their lockdown savings in a bid to meet their day to day living costs while others opt to borrow more to meet their needs.

“Mortgage payers have had the option to fix their costs in recent months, but those who rent will feel very exposed to further increases in the coming months.”

Is there a way to beat the increase?

Yes, but you should act fast before interest rates rise even more.

Moving onto a fixed rate deal is the only way to beat any further increases to the base rate – using a mortgage comparison tool is the easiest way to do this.

However, beware of additional fees that can come with switching to a new deal.

Some mortgages will come with exit fees when you decide to change, and new mortgage deals can charge you arrangement and valuation fees.



[ad_2]

Leave a Reply

Your email address will not be published.

Latest from Blog