11/12/23
After more than a decade of historically low interest rates, the Bank of England (BoE) has repeatedly raised the base rate since late 2021 in a bid to control inflation.
This has squeezed the budgets of many homeowners who have seen their mortgage repayments increase when their current deal has come to an end.
While the BoE held the base rate at 5.25% in September, this is still the highest level since the financial crisis in 2008. And, according to a recent report by BBC News, the International Monetary Fund (IMF) has forecast that interest rates in the UK won’t start to fall until 2028.
Read on to find out how this prediction could affect you as a homeowner and discover how to reduce costs by securing a mortgage deal that suits your circ*mstances.
UK interest rates could remain high for a long time
The IMF is an international organisation with 190 member countries. It aims to monitor, support and stabilise the global economy. In times of crisis, countries may turn to the IMF for financial assistance. It typically publishes two economic forecasts every year.
The most recent IMF forecast, published in October, predicted that BoE rates would peak at 6% and remain at around 5% until 2028.
This is the highest rate of interest since the financial crisis in 2008.
The reason the BoE has increased the base rate is to control inflation which, according to data from the Office for National Statistics, was 6.7% in the 12 months to September 2023.
Higher interest rates make both borrowing, and spending on goods and services, more expensive. As people spend less, costs typically rise more slowly due to less demand. This in turn can lower inflation.
How interest rates affect your mortgage repayments
If you’re a homeowner who has enjoyed interest rates and mortgage repayments at record lows in recent years, you could face higher monthly mortgage repayments when your current rate comes to an end.
This is because higher interest rates make borrowing the same amount of money more expensive.
When your fixed-rate deal ends, you’ll usually move onto your mortgage provider’s standard variable rate (SVR), which is generally guided by the BoE’s base rate.
This is likely to result in higher monthly mortgage repayments and a greater total cost of borrowing compared to your current deal.
Even if you find an alternative mortgage deal, “higher for longer” interest rates as the IMF predicts will mean that your repayments will likely be more expensive than they have been in recent years.
Securing the right mortgage deal could reduce costs
Finding the right mortgage deal for your circ*mstances could save you a significant sum each month. The following steps may help you to secure a deal that meets your needs:
1. Decide what type of mortgage you want
First of all, make sure that you understand the types of mortgages available and which one best suits your needs. Do you want an interest-only mortgage, or would you rather pay off some of the capital each month with a repayment mortgage? Are you looking for a fixed-rate or a variable-rate mortgage?
If you’re not clear about the differences between the various mortgage types, speak to a mortgage broker who can explain this to you.
2. Do your research
Once you have a good idea of what kind of deal you’re after, take the time to shop around or ask a mortgage broker to do so on your behalf. They’ll know the full details of lenders’ criteria so they can match you up with a deal that meets your specific needs.
A key consideration when looking for a mortgage is what type of deal to go for. For example, if you choose a fixed rate, your monthly repayments will remain the same until the end of the term, regardless of interest rate changes.
This can benefit you if you’re looking for stability or if interest rates were to continue to rise. However, if they fall then you won’t benefit from these lower rates.
3. Start early
If you don’t make new arrangements, your mortgage is likely to revert to your lender’s SVR when your deal ends. This could see your repayments rise sharply.
Many mortgage offers are valid for six months, so start shopping around a few months before your existing deal ends. This can help you to put a new deal in place in plenty of time, ensuring you don’t pay more than you need to.
Contact us if you have questions about your mortgage
If you’d like to better understand the types of mortgages available and what kind of deal could suit your needs, please contact us.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Think carefully before securing other debts against your home.
