In an effort to help moderate inflation, the Bank of England raised rates for the 11th consecutive time in March, from 4% to 4.25. With this increase, the bank rate is now at the highest level we have seen since the financial crisis of 2008. Of course, since lenders base their rates on the base rate, that means the cost of borrowing has increased as a result.
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.
Mortgage rates
The cost of living crisis and increased inflation are only partially to blame for the market’s volatility. After September 2022’s mini-budget, the market went haywire, sending the pound plummeting. Luckily, mortgage costs have since stabilised and are now settled at their current levels. But what effect do rising interest rates have on mortgages?
Around 2 million homeowners are on variable rate mortgages, such as tracker mortgages, and these borrowers immediately see their mortgage rates affected when the base rate changes.
However, those on fixed-rate deals won’t see any immediate change as their rate is locked in for the length of their term. However, when the mortgage term comes to an end and borrowers seek remortgaging options, then they will realise the impact of higher interest rates.
The impact of rising rates
The estimated two million homeowners on variable rate deals, such as base rate trackers, will see an almost immediate rise in their monthly repayments following the latest Bank rate rise to 4.25%.
As an example, a tracker rate rising from 4.5% to 4.75% costs around an extra £31 a month on a £200,000 loan taken over 25 years.
Those on fixed-rate deals, where the interest rate is locked in for, say, two or five years, won’t see any difference in their monthly payments. But when the deal comes to an end, mortgages available are likely to be more expensive.
Buyer beware
Be cautious when it’s time to look for a mortgage because sometimes the cheapest rates come with high fees that need to be paid either upfront or added to the loan. Usually, with a large deposit you have more options and lower rates, but no matter how big your deposit is, you will still need to provide proof of income and clean credit history. You can get a head start on looking for a new mortgage though, since most mortgage offers are valid for up to six months.
If you are in the market for a new home or are looking to remortgage, the specialist mortgage advisers at Dental & Medical Financial Services are here to help. Get in contact today.