The UK economy continues to fall into recession as costs of living soar. In order to tackle inflation, The Bank of England have once again raised their base rate. September 2022, has seen the 7th consecutive rate hike this year, as the base rate increased by an additional 0.5%, bringing it up to 2.25%. This change undoubtedly won’t go unnoticed by homeowners and homebuyers alike as borrowing costs become higher.
Why are interest rates rising
The Bank of England continue to increase their base rate in order to combat the rising rates of inflation, currently sitting at 9.9% - up from 1.4% since 2020. Rising inflation rates are mostly being driven by shortages in the supply chain which is causing prices of essential goods and services to go up, as well the the ongoing war between Ukraine and Russia, which has been the catalyst for climbing prices of gas and electricity.
Rates of inflation and interest rates correlate, as when inflation is on the increase, interest rates go up as well. Interest rates across the country are defined by the Bank of England ‘base rate’ - or ‘driver’ for rates for all mortgage lenders. The ‘BOE’ have a mandate to keep inflation at 2% and they’ll look to use all the tools at their disposal to achieve that - increasing the base rate being one of the most impactful.
This means that as long as inflation continues to rise, interest rates will go up accordingly - hence why there is no real telling as of now how much higher we can expect them to get. The Bank of England have forecasted that interest rates are likely to reach 10% or higher, however there is no real way of telling how high they are going to get if they supply chain issues continue driving up prices of common household goods and raw materials.
Connect with award winning FCA Authorised Mortgage and Protection Advisors, receive tailored advice and save on your mortgage.
Get in touch:
Mortgage and Protection Advice is provided by Mortgage Joy Limited (FCA: 955439)
How will rising interest rates affect you?
Rising interest rates will increase the cost of borrowing money, both for homeowners and aspiring homebuyers. Mortgage payments can increase considerably for those who are not currently on a fixed-rate mortgage deal, with many already spending hundreds of pounds more over the past year on their mortgage repayments.
Those intending to purchase a home gradually lose buying power as their affordability decreases. It is reported that for every half-percent rise in interest rates, the average homebuyer loses around 5% of buying power - meaning many will no longer be able to afford the same properties as just a year ago.
The cost of living crisis caused by rising inflation rates contributes to this further. Many people have had to dip into their deposit savings in order to deal with rising costs of goods and services, further decreasing their affordability, forcing people to go for lower-value properties or to reconsider property buying altogether.
If you are on a standard variable rate or tracker mortgage, expect to see mortgage payments increase in the months ahead. By remortgaging now and locking into a new 'fixed rate' deal, you can avoid overpaying on your mortgage and protect yourself against further interest rate raises in the future.
What is remortgaging?
Remortgaging can be simply described as switching your current mortgage deal to a different one. You may choose to do this in order to change the terms of your mortgage based on your personal needs - things such as the duration of your mortgage, your monthly repayments, and to lock into another fixed rate term.
How can remortgaging help you protect yourself against rising interest rates?
Interest rates have seen the biggest spike since 2008, as they reach numbers eightfold higher than what they were just two years ago. This means that those on standard variable rate and tracker mortgages are now experiencing exponentially higher mortgage repayments, with many homeowners spending thousands of pounds more on their mortgage annually.
If your fixed rate mortgage deal is coming close to an end, you will be automatically moved to a Standard Variable Rate mortgage. Standard Variable Rate (SVR) mortgage products tend to be the product most mortgage holders end up on when their introductory offer or fixed rate product duration expires. If you don’t lock into a new fixed-rate mortgage product, your interest payments will continue to increase as long as the base rate goes up.
Connect with award winning FCA Authorised Mortgage and Protection Advisors, receive tailored advice and save on your mortgage.
Get in touch:
Mortgage and Protection Advice is provided by Mortgage Joy Limited (FCA: 955439)
With the Bank of England interest rate reaching a staggering 2.25%, those who originally entered a five-year fixed-interest deal in 2017, will now be paying at least five times more in interest repayments alone. Alongside higher prices of household goods and the skyrocketing cost of utilities, millions of UK homeowners are guaranteed to feel the squeeze as their affordability decreases.
These costs are likely to continue going up with inflation, which is forecasted to keep climbing until at least the end of 2023. Those who are not on a fixed-rate mortgage will therefore have to continue having to pay more until interest rates stabilise. The process of remortgaging allows those who are currently susceptible to further interest rate hikes to ‘freeze’ their interest rate for a specified period of time, giving them clarity over their monthly repayments and helping them save over time.
What’s the difference between remortgaging and product transfer?
Once you decide to lock into, or ‘freeze’ your mortgage interest rate you will be faced with two ways of doing so. You can either remortgage with a new lender, or do what’s called a product transfer with your current lender. Both have the potential to decrease your mortgage repayments over time and protect you from further interest rate hikes, however, also come with their very own advantages and disadvantages, on which you can be best advised by an experienced broker.
Pros and Cons of remortgaging
Your mortgage can be looked at as a financial product, offered by a lender. Just because you have taken out a mortgage with one bank, it does not mean that you can’t transfer it over to another. This is exactly how the process of remortgaging works. Seeing that different lenders offer different mortgage products with varying interest rates and lending criteria, you may find that their offers are more favourable to you than ones offered by your current lender.
It is likely that by switching to a different lender you will be offered a better interest rate, as they attempt to attract new customers. This will then not only make your mortgage repayments cheaper, but also give you an added level of security if you go for a ‘fixed-rate’ deal where you will be kept on the pre-decided interest rate for a set amount of years.
As expected, switching to a different lender may prove to a be slightly more time-consuming than simply switching to a different deal with your current lender, as you will have to re-submit all of your financial information and pass their individual mortgage criteria. However, don’t let this intimidate you. The potential savings are worth the extra effort, and the process can be made significantly smoother with the help of an experienced Mortgage Broker who’ll guide you along the way.
Pros and cons of product transfer
A product transfer varies from remortgaging, as it is defined as staying with your current lender whilst securing a new rate. Product transfers can often seem like the first choice once your ‘fixed rate’ deal is coming to an end and you are about to be placed on a standard variable rate. By contacting your lender directly, you can carry out a product transfer over the phone in order to be put on a new ‘fixed rate’ deal, and protect yourself from future interest rate hikes.
The main benefit of a product transfer over remortgaging is simplicity. Your lender already has all of your financial information, therefore you will not be expected to submit any additional documentation except for proving your identity. On the other hand, this convenience can cost you extra in the long run, as the deal offered by your current lender may not be the best one out there.
Impact of interest rate hikes on the remortgage process
2022 has been called the year of the remortgage for a reason. Lenders are now flooded with remortgage and product transfer enquiries, as homeowners across the country try to protect themselves against rising interest rates. After a long period of iconically low costs of borrowing, many are now frantically looking for solutions to avoid overpaying on their mortgage.
As much as the process does not have to be difficult, many first time buyers are going through it for the first time, unaware of the options available to them. At Mortgage Propeller, we always advise to expand your horizons and make sure you choose not just what’s satisfactory but what is truly best for you and what you can continue benefiting from over time.
By contacting one of our qualified Mortgage Brokers, you can easily compare the different deals available out there, to ensure you lock into the lowest interest rate available to you. You can also benefit from unlimited guidance from our advisors, who do not shy away from any questions and will make sure your remortgage process remains a 100% transparent.
