Interest rates are about to start rising, despite today's Bank of England decision to hold, it's now when not if rates go up in 2022. If you’ve been putting off that re-mortgaging conversation, now’s your best chance of keeping your mortgage rate low.
For a long time now, interest rates and the mortgage rates that inevitably follow them have been at historic lows. If you’re able to remember the late 70s, when rates hit an eye-watering 17%, or even the early 90s when they touched 15%, the current Bank of England base rate of 0.1% seems tiny by comparison.
But the problem with low rates is we all get used to them. When they start to climb, every quarter percent on your monthly payment feels painful.
Are interest rates going up?
The first rise looks set to increase the base rate to 0.25%. The reason this is likely to happen is that, thanks to recent gas prices and supply chain problems, inflation has zoomed to above 3%. Analysts are forecasting it to top out at somewhere between 4 and 5%. And when inflation shoots up, the standard lever the Bank of England has always pulled is the one with ‘increase interest rates’ written on it.
Will my mortgage go up?
An increase in the Bank of England base rate doesn’t have to mean that every lender will follow suit instantly – but it is likely that rates will go up, and it’s likely they’ll go up pretty quickly. Some lenders have already started pulling some of their more generous fixed deals in anticipation of an imminent rate rise.
Even if rates go up, if you’re on a fixed rate, you’ll be protected from the rise until your preferential rate comes to an end. For everyone else though, whether you’re on a standard variable rate, a capped rate or tracker, you’ll likely see a small increase in your monthly mortgage cost.
Will mortgage rates keep going up?
Here’s the big question. Many don’t expect inflation to stay at its current, relatively high levels for too long. Yet, when making their investment decisions, market analysts in the City have recently been factoring in a base rate rise to 1% by next May.
They may be wrong. Rate rises may not be anything like as aggressive as feared, although the likelihood is they will go up to some degree.
How much will my mortgage go up if rates increase?
This isn’t an easy question to answer as it all depends on your current rate, the new rate and the size of your mortgage, but here’s a broad example.
Suppose you have a 25 year, £200,000 repayment mortgage. Your current rate is 3.2%. Over the next few months, let’s assume the Bank of England puts up rates a few times and your lender follows suit. By next May, the interest rate is 1% higher than it is now and you’re not on a fixed rate to protect you from the rise.
By next May, you’ll be paying just over £100 more per month for your mortgage.
Why re-mortgage now?
We don’t know what’s going to happen next with interest rates, but for the first time in a long time, all the pressure seems to be on rate rises. A quarter percent increase seems all but inevitable. How much things increase beyond that seems very much to depend on how quickly inflation can be dragged back under control.
It all makes for a rather uncertain picture, and uncertainty is the last thing you want when you’re getting ready to re-mortgage.
So if you want to protect yourself from what has been an increasingly volatile market and lock in the lowest rate, now is the time to talk re-mortgaging. To make a start and explore your options, with Sharon, Clare, Andrey and the mortgage team give us a call now, on 01995 600600.