Questions households are often asking are;
Can I afford to live in my home if rates continue to rise?
Should I Remortgage now, or should I wait?
What is happening to Mortgage rates and why?
Will the Bank of England increase the base rate again?
I am concerned about future rate increases; should I look to fix my rate for a longer term?
These are some of the questions borrowers ask following a series of base rate rises and the UK Economic crisis. If you have mortgage-related questions, then read on.
Why is there so much disruption in the economic market?
The UK Economic Crisis, Mortgage rates and The Bank of England base rate explained.
Over the last few years, with Interest rates at record lows, lenders have been trying to price mortgages sustainably to offer good long-term value to borrowers while maintaining service in an ever-changing environment. Usually, a lender’s funding comes through wholesale markets, government funding schemes, and funds from their customers/members. While there is a combination of different options for Mortgage lenders to gain funding for new Mortgages, their makeup is fluid and often volatile.
It can change quickly depending on how the markets are performing. The cost of borrowing for lenders and, therefore, the funding of mortgages has increased drastically in recent months because of economic influences. Russia’s decision to invade Ukraine, the energy crisis, the need to curb inflation and the recent mini-budget announcement are all among many factors having a knock-on impact and forcing lenders to price, not for excess profit but, in many cases, to avoid losses.
With the recent decision of The Bank of England to increase the base rate by a further 0.5% on 22nd September, base rates have risen to a 10-year high of 2.25% (this is 2.15% higher than 12 months ago). Whilst this will generally only impact tracker and variable-rate mortgages to start with, it will affect fixed-rate mortgages as they end. This change has driven up funding costs, affecting the pricing of new Fixed Rate products, which is why we have seen lenders increase borrowing costs.
Mortgage rates have therefore increased substantially over the last 12 months. Typically, a 2-year fixed rate in 2021 would have seen a rate of around 1.5%, as, at the beginning of October 2022, rates on the same basis are generally well over 4.5%.
Meaning that a household with a mortgage of £175,000 over 25 years would have been paying £700 per month at 1.5%. At 4.5%, this monthly cost increases to £972.71, a significant increase of £273 per month.
The recent Mini-Budget announced on Friday, 23rd September has created turmoil in the lending market, leading to thousands of products being withdrawn from the market, and some lenders even paused new business. The general feedback from lenders is that they are concerned that future base rate rises could affect many homes being able to afford their mortgage. With the UK economic crisis in full force, this could also impact the value of a property.
With the volatility of the current market conditions and how little notice some lenders provide before withdrawing products or pausing new lending applications.
What are the options, and what can be done to help?
We believe getting professional advice has never been more essential. Reviewing your options with an experienced mortgage expert could assist you with options you had not previously considered.
Mortgage deals and rates are changing quickly, and making the wrong decision without speaking with a professional could lead to completely the wrong decision. Situations such as;
Can I afford to live in my home if rates continue to rise?
Should I Remortgage now, or should I wait?
What is happening to Mortgage rates and why?
Will the Bank of England increase the base rate again?
To make sure you make the right decision, it is important to take advice. Speaking with an independent broker will give you access to lending solutions and products that are not necessarily available through one lender directly.
Do not put off or delay reviewing your mortgage.
In most cases, professional mortgage brokers do not charge fees for initial advice. Therefore, speak to a broker, review your situation, needs, and requirements and allow them to make informed recommendations for you. With households having already experienced increased costs. Delaying a decision to review your mortgage options may lead to even greater increases in household costs. With a mortgage tending to be one of, if not the largest household expense, it’s important to review your options as soon as possible.
Do not delay if you experience any of the following situations occurring:
A fixed-rate ending in the next 6-8 months. Now is the time to start to review. A Remortgage offer is generally valid for six months, meaning you could secure a deal now ahead of any further rate increases.
You are in a fixed rate that ends in the next few years and are concerned that rates will be too high on exit. If this could potentially make payments unaffordable, then review now. Most fixed rates have early repayment charges; however, securing a fixed rate that is affordable now will give you peace of mind should be considered.
If you have other financial commitments, such as loans, HP or credit cards? Consolidating short-term debt is not always advisable, as it generally means paying more in interest. It could be worth considering if it would help reduce your monthly cost and again gives you peace of mind with fixed payments.
If you are concerned about increased rates affecting your Mortgage payments, another potential option could be to potentially extend your mortgage term.
Reviewing your life assurance/protection. This may seem like a strange thing to add, why would you want to increase costs? However, consider a situation whereby there is a loss of income to your household. How would this affect your ability to pay your home and bills? A sensible level of cover again will provide peace of mind.
Summary
The overall message is that there is volatility in the marketplace, and lenders have increased rates. These rates have increased quickly. Many households have a rate coming to an end within the next 6 to 8 months, or that have concerns about the cost of their mortgage when their fixed rate ends or have other concerns, as listed earlier. They would potentially benefit from discussing their options regarding their mortgage and household expenditure with a professional.
Do not put off reviewing your options with a professional; My Mortgage & Protection Experts (MMPE) are independent, whole-of-market mortgage brokers. We would urge you to “Reach Out”. We want to try and help, and the sooner, the better is generally the best rule of thumb. Delaying a review could mean further cost increases. Please note that MMPE do not charge a broker fee for initial consultations. Take up our offer to benefit from peace of mind.
