Short-term mortgages of less than five years are the norm here in the UK. Tracker mortgages that follow the Bank of England’s base rate are also popular. However, elsewhere in Europe, as well as in the US, long-term loans for property purchases are more common. Could this practice mean that our economy is more vulnerable?
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Because many people have tracker mortgages and short-term loans are popular, it means that mortgage interest rates are constantly changing and susceptible to the effects of a fluctuating market. Rate raises have a direct impact on household incomes and coupled with rising inflation, it puts the UK in a precarious economic position.
Fixing the problem isn’t exactly a case of balancing supply and demand. The UK is in a unique position because global inflation immediately influences our own country’s inflation. There’s no way to curtail the tendency we have to spend, so what happens is the consumer is hit with the bulk of the responsibility.
With the most recent rise of a quarter of a percentage point by the BoE, the current base interest rate is now 1%, the highest it’s been since 2009. This also makes it the fourth consecutive rate hike. Experts are also forecasting that inflation will hit 10% this year, with Russia’s attack on Ukraine fueling the increase in food and energy prices that had already been rising.
Short-term mortgages mean that consumer spending habits and behaviour aren’t likely to change in such a short period and economists have suggested that the true economic impact of each rate hike has not been considered carefully enough.
Unfortunately for millions of homeowners, the fixed-rate mortgage deals set to expire in the near future mean that many could be facing an extreme strain on their finances. In the last few years interest rates have been low, encouraging borrowing, but with so many coming to a close, monthly payments will undoubtedly go up as the only available deals will also come with higher interest rates. At a time when finances are likely already strained, it could put a huge damper on UK households and indeed the economy at large.
To consider your options when it comes to remortgaging in the near future, get in touch with us. We’ll help you find the best provider and mortgage deal for your unique circumstances.