Interest Rates Are Rising - What could it mean for your mortgage

RECENT YEARS have seen an extraordinary period of competitive and low interest rate mortgage deals but, even before the Bank of England’s (BoE) rate-setting Monetary Policy Committee began increasing interest rates last December, there were signs that the era of ultra-low mortgage rates was at an end.

For many people, rate rises will mean an increase in their outgoings at a time when incomes are already stretched.

It is therefore important to consider how a rise in interest rates might affect your ability to meet your mortgage payments.

CALCULATE IF YOU CAN AFFORD THE INCREASE. How you’ll be affected by an interest rate rise depends on what mortgage you’re on and when your deal comes to an end. But if your mortgage repayments are likely to go up, you need to calculate if you can afford the increase and consider your options.

Create a budget and see if there are any areas where you might be able to cut back. If the increases are likely to be in the future, then start building up a savings buffer so you’ll be able to afford your mortgage when repayments start increasing.

HOW WILL INTEREST RATE RISES AFFECT ME?
If you have a loan or mortgage that charges you a variable interest rate, you might find that the cost of your repayments go up.

Say you have a £130,000 mortgage that you want to pay off over 25 years. If the interest rate on the mortgage is 2.5%, the monthly repayment will be £583. But if the interest rate is 0.25% higher – the amount the Bank Rate was raised in March 2022 – the monthly repayment rises by £17 to £600.

If you’re on a fixed rate you won’t see any change until the end of your fixed period.

“For many people, rate rises will mean an increase in their outgoings at a time when incomes are already stretched.”

IMMEDIATE IMPACT ON YOUR MORTGAGE REPAYMENTS
If you have a variable rate tracker mortgage linked to the BoE base rate you are likely to see an immediate impact on your mortgage repayments when there is an interest rate rise. But if you’ve got some time left on your current deal, it can also be worth considering your options to switch. You might have to pay some fees, but if the savings are worth it you may want to consider this.

Those on a standard variable rate mortgage will probably see an increase in their rate in line with any interest rate rise. How much is decided by your lender, so this isn’t guaranteed. If you are unsure, check your mortgage terms and conditions in your original mortgage offer document.

People with fixed rate mortgages are likely to be affected once they reach the end of their current deal. If your current deal is coming to an end, if appropriate, consider switching to make sure you’re on the best rate.

SEE IF YOU ARE ELIGIBLE FOR A DIFFERENT TYPE OF MORTGAGE PRODUCT
If you are worried about how higher mortgage repayments could impact on your finances, speak to us to see if you are eligible for a different type of mortgage product, such as a fixed rate, which would give you some protection against further interest rate rises.

We can also make sure that you are on the best mortgage deal for your circumstances. If you have not reviewed your mortgage in the last few years, then now is a good time to do so. There are many deals available and you may be able to get a better rate by switching lenders.

Source data:

https://www.bankofengland.co.uk/ knowledgebank/why-are-interest- rates-in-the-uk-going-up

>> CONCERNED
ABOUT HOW HIGHER INTEREST RATES
COULD AFFECT YOU? <<
If you are concerned about how higher interest rates could affect your ability
to meet your mortgage payments, then please speak us. We can help you to find the right mortgage product for your needs and circumstances. To talk to us about your requirements, please contact The Surrey Mortgage Broker – telephone 01252 759233 – email Info@thesurreymortgagebroker.co.uk.

Brexit and Interest Rates

You can’t go anywhere or do anything at the moment without Brexit being mentioned. Twenty four hour news channels streaming endless Brexit commentary is leaving the writer somewhat deflated and in search of a convenient wall to bang my head against.

I’m not going to comment on Backstops, Customs Unions or Trade Agreements as they are outside of my sphere. Instead I’m going to talk about the effect of Brexit on interest rates and therefore our pockets.

It is not likely we will be leaving the EU with no deal but if this were the case I would predict at least a year of difficulty for the UK Economy. Traditionally in circumstances where the economy is suffering the Bank of England would look to stimulate the economy with the fiscal measures at it’s disposal. These measures would likely be a cut in interest rates and possibly further quantitive easing. How effective an interest rate cut would be is debatable. The rate currently sits at 0.75% so still historically low. High street lender mortgage rates are currently very competitive, allbeit around 0.3-0.4% higher than they were a couple of years ago. However we are a country that is heavily mortgaged so even a small decrease will give consumers more money in their pocket with which they can spend, spend, spend.

The economy is robust according to the Chancellor, Philip Hammond, having experienced nine consecutive years of growth and further growth predicted. He also stated that wages are still rising. Both these are traditional indicators of a possible interest rate rise. However right now the situation is too uncertain for the Bank of England to start pushing rates up. The withdrawal deal has not been agreed and at the moment there’s no indication of when it will be agreed so this puts pressure on the economy and the Monetary Policy Committee, I feel, would be hard pressed to justify any rise in rates now.

The housing market has most certainly slowed in the last 12 to 18 months with transactions down, supply down and demand down. House prices have not yet taken a big hit but they do not appear to be rising either. I do not think a rate cut will necessarily stimulate the housing market as rates are low as it is. It is the uncertainty that is causing the slowdown. I think concern about jobs and prices in the future is bothering the UK Consumer.

If a deal is reached then this will offer a little bit of certainty as we will at least have an idea of what the future relationship with Europe will be and how this may affect jobs and prices here in the UK. In the event of the withdrawal  deal being finalised I still think we have a period of a couple of years while the various deals are done and withdrawal actually takes place. In this light I can see interest rates staying put for at least the first year before we have an idea of where we are going economically. After this I see the Bank of England increasing rates to around 1.25% by mid 2021.

As I’ve said before, take a look at what the high street lenders are offering for an indication of how they feel. Still available are five year fixed rate deals at less than 2%. That is good value for money and if they are happy lending at that level then they don’t think rates are going too crazy in the next few years.

If you are thinking of borrowing more for a move or a remortgage then I wouldn’t be put off by the prospect of rising interest rates. I guess the decision comes down to your general feelings around job and income security going forward.

For this blog I have given personal opinion and taken influence and material from ftadviser.com and the Chancellor’s Spring Statement 13th March 2019.

Update at 17:30 on 13th March – just seen this article here supporting some of what I have said above.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY  MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

What have I learned recently!

I’ve not written a blog for months, in fact the last one I wrote was a bit “woe is me” piece about my home improvement problems.

You will be pleased to hear that the house has finally been completed and we have re-installed our kitchen and have a new floor laid after our flood. It was stressful and the insurance claim is a protracted and painful process that has still not been 100% resolved.

However today I’m going to move away from home improvement and touch on some other areas I have been lucky enough to learn about in recent weeks.

The nice people at HSBC for intermediaries invited me along to a seminar at the end of October which was very interesting. It was held at Mercedes Benz world, which was great even for an anti-petrol head like me.

One of the things I like to mention in Blogs over the years is the Bank of England interest rate. I have made many predictions and I’m quite pleased to say I’ve been pretty accurate so far. The main factor I like to draw your attention to is wages. Once wages are outstripping inflation for a sustained period of time then you can expect a rise in interest rates.

Wages in real terms  are actually less than they were in 2007. I do think this is changing, slowly but surely and this will point towards a rise eventually.

However there is an unknown variable that has cropped up, sorry to bring this up, Brexit.

It is this matter that brings me back to HSBC, the nice chap giving a presentation mentioned this in his analysis (as well as lots of other stuff), and said that their prediction was no further interest rates would happen until 2021.

This is backed up by the proliferation of really competitive five year fixed rate products available right now. With the right equity/deposit you can secure a five year fixed rate at under 2%. That is cheap money.

Another presenter who intrigued me was talking about technology and in particular API’s. This stands for Application Programming Interface. We use them all the time without knowing it. Loads of apps on your phone will use API’s. The point the presenter was making was that soon you will be able to apply to mortgage companies with the help of API’s taking information from other apps (personal information) and pre-populating a mortgage application. This isn’t really available right now and having done a bit of research myself I see it is a little way off yet due to all the lenders being quite defensive over their own then you can expect a rise in interest rates.systems. Plus there is the data protection issue so I think we should watch this space and see what happens.

I’ve been pleasantly surprised and inspired by a number of life insurance companies and their enthusiastic business development managers. Legal and General, Royal London and Vitality Life all have hit home with some remarkable statistics and some really good products.

In particular I have been struck by Vitality Life and how they are encouraging healthy lifestyles. So inspired was I that I have signed up for a policy. They offer a premium discount up front and if you “engage” with them by being active you will continue to receive that discount You can also get offers and discounts on various goods such as fitness trackers, apple watches etc.

In my world very few clients see the benefit of insurance and yet we all have it in one form or another. The cat is insured, the TV is insured, the car is insured but very few of US are insured. Have a think about what would happen if you couldn’t work for a year. What would you give up? Have a look at this old blog from 2016 for a bit of useful information.

If you would like to discuss what insurance and protection policies are best for your individual circumstances, please get in touch. Or if you have a question about any of the above, leave a comment in the box below.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY  MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.