You may have seen headlines recently stating that, following the mini-Budget, the cost of mortgages has been on the rise.
In fact, many deals were pulled from the market altogether after lenders were having trouble pricing their products due to market uncertainty.
So, has your mortgage become more expensive in recent months? Or are your repayments likely to rise sharply in the next few months when your existing deal comes to an end?
Well, keep reading to find out why rates have been climbing, and what you can do about it.
Mortgage rates have been on the rise in recent months
As you may have seen, the inflation rate has been on the rise over the last year due to several reasons, ranging from Russia’s invasion of Ukraine to supply chain issues.
In fact, as of 19 November 2022, UK inflation sits at 11.1%. The announcement of the mini-Budget also had an effect on inflation, as the price for goods and services could be driven up by a weak pound and shaky investor confidence in the UK government as they borrow money to pay for tax cuts.
Consequently, the Bank of England (BoE) has increased the base rate in an attempt to combat climbing inflation.
While this may help reduce inflation in the coming months or years, it does have the unfortunate side effect of driving up mortgage rates.
A rising base rate isn’t the only reason that mortgage repayment rates have been on the rise, though. The recent mini-Budget caused turmoil in the money markets, leading to a steep rise in gilt yields, the interest paid on government bonds. Banks typically use them to price their fixed-rate mortgages, and these rapid changes made it difficult to set rates.
The mini-Budget also increased the likelihood that the BoE will have to raise interest rates more sharply than previously thought.
These rapidly changing market conditions have resulted in products being pulled as lenders struggled to price their loans properly.
You may need to pay a significantly higher amount on your mortgage than before
According to the BBC, the average mortgage rates are the highest they’ve been since the 2008 financial crash.
In fact, the average rate on a two-year fixed-rate mortgage was 6.53% as of 18 October, while the average five-year fixed-rate deal rose to 6.36%.
When you compare this to the average two-year fixed-rate deal of 4.74% on the day of the mini-Budget, this is a significant increase.
So, to show you how much extra you would now be paying on a mortgage, imagine you were buying a £500,000 home. You put down a 10% deposit and borrow £450,000 on a capital and interest (repayment) mortgage over 25 years.
According to Money Helper’s mortgage calculator, you would pay £2,563 a month on a 4.74% two-year fixed-rate deal (the rate just prior to the mini-Budget).
Compare this with the new average rate of 6.53%. If you were to take out the same mortgage as above on this rate, you would face monthly payments of £3,047.
Based on the new average two-year fixed-rate deal today, when compared to before the mini-Budget, you would pay £484 extra every month.
So, is there anything you can do to combat these higher mortgage repayment rates? Well, continue reading to discover what you need to know.
Be proactive, and act early
The Guardian reports that there are just under 9 million residential mortgages outstanding in the UK, of which around 75% are fixed-rate deals.
Approximately 1.3 million of these deals are due to end this year, so if you need to find a new deal, you may be hit hard by these rate increases. Any new rates available are likely to be significantly higher than the deal you have that is finishing.
One way to mitigate any potential rise is to be proactive, and to look for a new deal well in advance of your existing rate ending.
Mortgage offers are typically valid for between three and six months, so you can often get a deal agreed now, and delay the completion until just after your existing mortgage deal ends. This may mean you benefit from a lower rate now than if you waited a few months.
If you don’t, you could be left on your lender’s standard variable rate (SVR). This rate is set at the lender’s discretion and is quite often uncompetitive when compared to other deals in the market.
Speak to an expert who can help to find the right deal for you
Working with an expert can also be a great way to find the most competitive deal for you.
We have access to thousands of mortgage products from across the market, and so we can search dozens of lenders to find a product that will suit your specific needs.
Also, it may be the case that, in the run-up to your existing deal ending, your current lender gets in touch and offers you a new “loyalty” deal.
While these can sometimes be competitive, it is always worth speaking to a mortgage broker first as there may be much more competitive deals available elsewhere in the market. Simply accepting one of your current lender’s deals may not be the best thing for you.
Get in touch
If you’re worried about rising mortgage rates, or your mortgage deal is coming to an end in the next few months and you’d like to explore your options, please get in touch.
Email enquire@london-money.co.uk or call (0207) 808 4120 to find out how we could help.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.