Mortgages: Expert advises public amidst rising base rates
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Higher interest rates make it more expensive for people to take out new mortgages. It also means that homeowners with tracker (variable rate) mortgages will pay more in interest on their monthly repayments.
As the cost of living crisis continues and inflation continues to soar, it is possible that the interest rates will rise again this year, putting further pressure on the monthly budgets. Some 1.1 million people are on an SVR while 850,000 are on tracker rates, according to the latest UK Finance figures from February.
Alan Fitzpatrick, VP Lending Operations at Habito suggested what the inflation rise could mean for borrowers.
A tracker mortgage is a type of variable rate mortgage which tracks a base rate – usually the Bank of England’s base rate. If people get a tracker mortgage, their mortgage repayments (including the interest they pay on their mortgage) could change several times a year.
Mr Fitzpatrick said: “As the Bank of England grapples to curb rising inflation, we are expecting further back-to-back interest rate increases this year.
“If the Bank does choose to hike rates again at its meetings in June, August or September, those on a standard variable rate mortgage, could see monthly mortgage repayments rocketing, when compared with the period of historic low rates we’ve enjoyed for the last 10 plus years.
“The ‘winners’ from rising inflation are borrowers on longer fixed-rate deals. These homeowners know that their monthly repayment amounts will stay the same for years, and won’t be subject to the types of shocks we’ve seen in energy, food, and petrol bills. However, those on shorter fixes, or with deals expiring soon, could face a bit of a rate shock when they come to remortgage.”
The Bank of England raised interest rates to one percent recently, which will add around £300 a year to a 2.25 percent variable rate mortgage deal of £200,000. The next interest rate decision will be next month when the Bank may well decide to raise rates again in the continuing battle against inflation.
Martijn van der Heijden, CFO at award-winning mortgage broker, lender, and digital home-buying service Habito, spoke about what a Base Rate rise means for homeowners with a variable rate mortgage.
He said: “For the quarter of UK homeowners who are on a variable, tracker, or standard variable rate, any vote to rise the base rate will mean they see their repayments go up; on tracker mortgages the change will be immediate and certain, but on a variable rate, it’s up to the lender.
“If you’ve not remortgaged for a while and have slipped on to your lender’s standard variable rate – it’s very likely you’ll now be paying more. The average Standard Variable Rate (SVR) mortgage ticked up by 0.10 percent to 4.71 percent in April, to reach a two-year high according to Moneyfacts.”
Mr Fitzpatrick continued: “For homeowners with deals expiring in the next six months, now is the time to look at whether fixing their mortgage costs is the right course of action.
“Mortgage rates are rising, but there are lenders out there which allow you to lock in a deal six months early.”
According to mortgage broker Trussle, an increasing number of homeowners are now opting for longer-term fixed mortgages in a “bid for stability”, with five-year terms particularly popular.
Mr Fitzpatrick said: “Long term fixed rate mortgages could also be worth considering for homeowners wanting more certainty over their repayments.
“Not only do long-term fixes offer homeowners protection from rising interest rates, but as inflation rises, the ‘real’ cost of repaying today’s mortgage grows cheaper over time. Essentially, homeowners can repay the loan in ever-cheaper pounds, which can ease the cost of borrowing.
“For some people, the impact of inflation will take a big toll on their monthly outgoings.
“We’ve already had enquiries from some customers wanting to remortgage to change their term from 20-years remaining to 30-years remaining, to reduce their monthly repayment amount.”
Inflation has risen to nine percent in the UK – increasing from seven percent in the year to March 2022.
The rise in inflation has prompted further calls from the opposition for the Government to do more to help people.
The news is “a huge worry for families already stretched”, Shadow Chancellor Rachel Reeves said.
She said Labour plans to “force a vote” for an emergency budget today and “for a plan for growth”.
The Chancellor Rishi Sunak has so far resisted opposition calls for an emergency budget, saying he would look at providing more support in the autumn, when the price cap – which rose by 54 percent in April- is expected to go up again.
Responding to the latest inflation rise today, he said: “ Countries around the world are dealing with rising inflation.
“Today’s inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.
“We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.
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