In recent weeks, the mortgage market has seen significant upheaval, with rising interest rates and lenders withdrawing products at short notice all becoming major talking points. As homeowners, you might be wondering what this means for you. This article aims to demystify what is happening, explaining what’s current situation, how it could affect you, and what steps you can take.
We’ll delve into the mortgage market’s current state, focusing specifically on how rising interest rates are impacting homeowners with fixed-rate mortgages. Whatever your situation, if you own your home, thinking of buying a home or even rent, understanding these changes is crucial for managing your budget and planning for the future.
The UK Mortgage Landscape
We are currently grappling with a record £1.63tn of mortgage debt, a 3.5% increase since February 2022. This debt is highly sensitive to changes in interest rates, which are set by the Bank of England. When interest rates rise, as they have been over recent months, the cost of borrowing increases. This means that the interest you pay on your mortgage could go up, making your monthly repayments more expensive.
Now, you might be wondering, “What if I have a fixed-rate mortgage? Isn’t my interest rate supposed to stay the same?” Well, yes that’s true. A fixed-rate mortgage means your interest rate stays the same for a set period, protecting you from any increases during that time. However, many of these fixed-rate mortgages are coming to an end this year. In fact, by December 2023, 1.4 million households fixed rate mortgages will end. Unfortunately, because interest rates have gone up, these homeowners will likely have to refix at higher rates, leading to more expensive repayments.
But what’s causing these higher interest rates?
The Bank of England raises interest rates to control inflation, which is the rate at which the general level of prices for goods and services is rising. Recently, the UK has been experiencing higher inflation due to various factors, including increased government spending during the pandemic, supply chain disruptions and the impact of the war in Ukraine. As a result, the Bank of England has been raising interest rates to keep inflation in check, which in turn affects the interest rates on mortgages.
The Impact and Implications of Rising Interest Rates for UK Homeowners
Rising interest rates can have a significant impact on fixed-rate mortgages. When the Bank of England raises interest rates, it affects not only the cost of new loans but also homeowners who are nearing the end of their fixed-rate period and need to refix their mortgages.
To understand this better, let’s look at some numbers. According to the Resolution Foundation, the total annual mortgage repayments could potentially rise by £15.8 billion by 2026. This means that the average household remortgaging next year could see their repayments rise by £2,900.
Why are markets expecting interest rates to rise?
Market expectations suggest that the Bank of England may continue to raise interest rates as inflation isn’t slowing down as fast as anticipated and pay growth. These rates are now expected to peak at nearly 6% in mid-2024, suggesting another five quarter-point rate hikes could be on the way.
As a result, the average two-year fixed-rate mortgage, which was previously available at under 3% as recently as August 2022, is expected to hit 6.25% later this year. It’s not expected to fall back below 4.5% until the end of 2027. This increase in mortgage rates could lead to a significant rise in the scale of the mortgage crunch.
However, it’s important to remember that these are market expectations, and actual rate rises may not be as severe as feared. While it’s true that three-fifths of Britain’s £15.7 billion mortgage hike is still to be passed on to households, that means that two-firths has already been passed on. It’s also true that homeowners could have a range of options to manage these changes and it’s important to stay informed and seek professional advice.
Not all households will be affected equally. The number of households expected to see their repayments rise will depend on when their fixed-rate period ends and how interest rates evolve over time. By 2026, it’s estimated that around 7.5 million households with a mortgage could see their repayments rise.
The Role of Mortgage Advisers
In the face of rising interest rates and the potential financial strain they could bring, you may feel overwhelmed and unsure of the best course of action. This is where mortgage advisers like The Mortgage Stop play a crucial role.
Mortgage advisers are experts in their field, they have a deep understanding of the market trends and the various mortgage products available. They can provide personalised advice based on your specific circumstances, helping you navigate the complexities of the current mortgage market.
For instance, if your fixed-rate period is coming to an end, a mortgage adviser can help you explore your options. They can guide you through the process of remortgaging, helping you find a new mortgage deal that suits your needs. They can also advise you on whether it might be beneficial to switch to a different type of mortgage, such as a long-term fixed-rate mortgage or an interest-only mortgage, to provide more stability in the face of rising interest rates.
In addition to helping you find the right mortgage product, a mortgage adviser can also look at other ways to mitigate the impact of rising interest rates. For example, they can help you review your mortgage term. Extending the term of your mortgage could low your monthly repayments, making them more manageable. However, it’s important to be aware that this could also mean you pay more interest over the life of the mortgage.
Furthermore, mortgage advisers can provide valuable insights into how the current market trends might affect your mortgage repayments in the future. They can help you plan ahead, ensuring you’re prepared for any potential increases in your repayments.
Seeking professional advice during these uncertain times can provide numerous benefits. It can help you make informed decisions, reduce financial stress, and ultimately, ensure you’re in the best possible position to manage the impact of rising interest rates.
Think of it this way: if you were going through a challenging time emotionally, you’d likely seek the help of a counsellor or therapist. They have the expertise to guide you through your difficulties, provide valuable insights, and equip you with the tools to manage your situation more effectively. Similarly, in the face of rising interest rates and their potential impact on your mortgage, a mortgage adviser can provide the expert guidance and tools you need to navigate these financial challenges.
Just as you wouldn’t hesitate to seek professional help for your mental wellbeing, there’s no need to navigate the complexities of the mortgage market alone. With the help of a mortgage adviser like The Mortgage Stop, you can take control of your financial future, even in these uncertain times.
Conclusion
In this article, we’ve explored the current state of the mortgage market, the impact of rising interest rates, and the implications for homeowners, particularly those with fixed-rate mortgages whose fixed period is coming to an end.
We’ve discussed how the Bank of England’s decision to raise interest rates, driven by factors such as higher inflation, is affecting the cost of borrowing. This has led to an increase in mortgage rates, which could potentially result in higher repayments for many homeowners in the coming years.
However, we’ve also highlighted that homeowners are not powerless in this situation. There are various options available to manage these changes, from remortgaging to a new deal, switching to a different type of mortgage, or even extending the term of the mortgage to lower monthly repayments.
Most importantly, we’ve emphasised the crucial role of mortgage advisers in helping homeowners navigate these changes. Mortgage advisers like The Mortgage Stop can provide personalised advice, help you explore your options, and guide you through the complexities of the mortgage market.
So, if you’re a homeowner whose fixed-rate period is coming to an end, or if you’re simply concerned about the impact of rising interest rates on your mortgage, don’t hesitate to seek professional advice. Reach out to a mortgage adviser like The Mortgage Stop today, and let us help you navigate these changes and secure your financial future.
Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage
Representative Example
7.85% APRC, based on borrowing £200,000.00 over 24 years on a 6.00% fixed rate until 30/06/2025, giving 24 monthly payments of £1,288.60, followed by 276 payments of £1,543.63 on a variable rate (currently 8.00%). Total amount payable £457,268.35 including the following one-off costs of £299.00 which consists of funds transfer fee and valuation fee.
Sources –
https://www.resolutionfoundation.org/press-releases/mortgage-crunch-deepens-with-15-7-billion-repayments-rise-now-on-track-to-bite-by-2026/UK mortgage statistics and facts: 2023 | money.co.ukUK Mortgage Statistics 2023 – Mortgage Facts and Stats Report | Uswitch