Interest rates have risen again by 0.25%, bringing it up to 5.25%.
Here’s how the interest rate rise could impact your mortgage, whether you’re a homeowner or property investor.
Given most of us are becoming a little worried about the news of rising fuel costs this winter, it’s not exactly welcome news to learn that the Bank of England has now raised interest rates again to their highest level in 13 years. However, it’s also important to keep things in perspective – mortgage rates have been at a historic low recently, ranging between 0.10% to 0.7%. Now, it’s up to 5.25%*.
Let’s take a closer look at the current mortgage market to help you understand what’s going on, what it means for your mortgage – and what you can do.
What is the base rate?
Set by the Bank of England, the base rate is a benchmark for the cost of borrowing money. It is important for you to understand because mortgage lenders decide the rates they will charge based on it. So, the Bank of England increasing the base rate will inevitably increase the cost of borrowing.
Why is this an issue?
We’re all very aware of the rising energy bills and the increasingly expensive weekly shop. Inflation affects absolutely everything that we pay for. We measure inflation by the increase in the cost of goods or fuel or bills. Manufacturers also often pass on the rising costs of labour and materials to the consumer. To relieve the squeeze of inflation, the Bank of England is trying to lessen the impact by increasing interest rates.
Will rising interest rates mean lower house prices?
It’s hard to tell. The increase in house prices depends on supply and demand of property. With the amount of properties available to buy being so low, the increased buyer demand ensures prices remain high. If, however, household finances are continually stretched then experts do suggest that house prices will have slowed down by the end of the year.
What’s your next step?
If you are on a fixed mortgage, not to worry as your interest rate will not be affected by the increase. If you are not currently on a fixed rate, you do have options and it may be possible for you to switch to a new mortgage if your current one isn’t so attractive, however if you are on a fixed rate and decide to switch to a different rate you may have an early repayment charge. Switching to a different rate could be worthwhile if there are good deals on the market. Our qualified mortgage consultants may be able to help you fix at a lower rate than your current one.
Is there any good news?
Well, yes actually. It’s not all doom and gloom. It’s worth remembering that the more of your mortgage that you have paid off, the better mortgage deal you’ll be able to find. The more equity you have in your home, the lower rate a lender is likely to offer. So, if your home has increased in value, your loan-to-value ratio has probably also risen. This means you could have a greater choice of options from more lenders and end up paying lower rates. We would always advise that you speak to a qualified mortgage advisor if you are unsure which options would be best for your individual circumstances.
Speak to one of our mortgage consultants, book your no obligation appointment today.
Call: 0191286 9231
Email: mortgages@rmsestateagents.co.uk
Information correct at time of publishing, 03.08.2023
MS/RMS/6246/08.22
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