The Bank of England has just announced its 13th consecutive interest rate rise since December 2021, taking the base rate to a staggering 5%. But what does this mean for your mortgage? 

In this article, we’ll look at the implications of this interest rate rise for mortgage holders.  Whether navigating a variable-rate mortgage or seeking a new home loan, it’s important to understand how these changes may impact you. 

Summary

• Bank of England’s interest rate rise to 5% affects UK mortgage holders.

• Variable-rate mortgage holders face increased monthly payments, while fixed-rate holders are temporarily unaffected.

• New mortgages see higher rates and reduced product availability in the current market.

• Potential mortgage arrears pose a risk, requiring proactive measures and government support.

• Stay informed, seek advice, and adapt strategies to navigate the changing financial landscape.

Impact on Mortgage Holders

The recent interest rate hike by the Bank of England has raised concerns among mortgage holders, particularly those with variable-rate mortgages. This news directly affects you if you’re one of the 1.4 million UK individuals on a variable-rate residential mortgage. 

Approximately half of these mortgage holders have a base-rate tracker or discounted-rate deals, while the other 50% are on their lender’s standard variable rate (SVR).

For those with tracker mortgages tied directly to the base rate, the increase means your pay rate will rise from its current level. 

This Guardian article features an excellent explanation. We have summarised the numbers here: 

• Imagine you’re a household with a tracker mortgage currently set at 5.5%. With the recent interest rate rise, your pay rate will now be 6%, leading to an increase of £43 per month in your mortgage payment.
• Let’s say you have a £150,000 repayment mortgage with 20 years remaining; your monthly payments will rise from £1,032 to £1,075.
• Now, you might think the increase is insignificant. However, that same household would have been paying £776 a month just last June. This means your annual payments have risen by £3,588. 
• What about larger mortgages? Say a £500,000 tracker mortgage with 20 years remaining. Your monthly payments will rise from £3,439 to £3,583 due to the rate rise. 
• In December 2021, your mortgage cost £2,356 a month, resulting in annual mortgage payments that have escalated by over £14,780 in just 18 months.

As for those on the lender’s SVR, changes are at the lender’s discretion, but most will likely increase their rates, albeit not necessarily by a total of 0.25% points. While some lenders may take time to announce their plans, it’s wise for mortgage holders to prepare for higher mortgage payments.

Fixed Rate Reprieve? 

If you’re among the 6.8 million households with a fixed-rate mortgage, you may breathe a sigh of relief, as the latest interest rate rise won’t impact you. This exemption lasts until your fixed-rate deal expires. Over 350,000 borrowers will transition off their fixed-rate deals between now and the end of September, many of whom had deals around the 2% mark.

Whether you’re currently on a variable-rate mortgage or approaching the end of your fixed-rate deal, it’s essential to assess your financial situation and prepare for potential changes. In the next section, we’ll explore the implications of this interest rate rise for those seeking new mortgages.

What about New Mortgages?

If you’ve been in the market for a new fixed-rate home loan, you may have noticed the recent turbulence in the mortgage landscape. The latest inflation figures, combined with the successive interest rate increases, have caused quite a stir, leading to the withdrawal or repricing of numerous mortgage products in recent weeks.

For example, NatWest recently informed brokers of rate increases on selected two- and five-year fixed-rate deals, raising them by 30 basis points (0.3 percentage points). Other lenders may follow suit in the coming days, further impacting the borrowing costs for prospective mortgage holders.

These shifts in interest rates for new mortgages present a unique challenge for prospective mortgage holders. As the borrowing costs increase, it’s helpful to carefully evaluate your financial situation, consider the long-term implications, and explore options that align with your budget and goals.

Obtaining a new mortgage in the current climate may require careful planning and research. However, competitive rates are still available for those willing to explore various lenders and loan products despite the challenges.

Potential Mortgage Arrears

With the continuous rise in interest rates, the concern of mortgage arrears becomes a valid issue for mortgage holders. Recent data revealed by the Liberal Democrats paints a concerning picture, suggesting that 1,250 mortgage holders have already been forced to surrender their homes due to falling behind on mortgage repayments since the mini-budget in September last year.

This equates to nearly 50 families losing their homes each week as mortgage rates soar. Additionally, there are currently 4,035 households at risk of losing their homes due to mortgage repossession claims in the courts, marking a 40% increase compared to the same period last year, as reported by the Lib Dems. 

Recognising the severity of the situation, Ed Davey, the party’s leader, has called for emergency support from the government to aid struggling mortgage holders and renters on the brink, similar to the assistance provided following the last financial crisis.

These statistics highlight the potential challenges mortgage holders face in the wake of rising interest rates. Individuals should take proactive measures to protect their homes and financial stability. 

Seeking financial advice, exploring mortgage assistance programs, and communicating openly with lenders are vital steps in navigating this complex landscape.

In the face of potential mortgage arrears: stay informed, seek guidance, and actively engage with available resources. The road ahead may be challenging, but with the proper support and prudent financial management, it is possible to overcome these hurdles and secure a brighter future for mortgage holders and renters alike.

The impact of the interest rate rise reaches far beyond mortgage holders. It affects the very foundations of financial stability for countless individuals and families. As we navigate these changing times, stay vigilant, adapt your strategies, and seek assistance when needed.

Summing Up

The recent interest rate rise by the Bank of England has sent ripples through the financial landscape, affecting mortgage holders alike. For those with variable-rate mortgages, the increase brings the challenge of higher monthly payments, highlighting the importance of budgeting and preparing for potential changes. Fixed-rate mortgage holders can breathe a temporary sigh of relief, but the approaching end of their deals calls for careful consideration and planning.

Prospective mortgage holders face the daunting task of navigating a changing mortgage market, with interest rate fluctuations impacting borrowing costs and product availability. Diligence, research, and exploring various lenders and loan options can help secure a favourable mortgage deal.

On the savings front, while interest rates have improved for savers, there is still room for growth, particularly in the offerings of traditional high-street banks. Exploring online savings providers and fixed-rate bonds can provide more attractive returns, but assessing the risks and aligning your savings strategy with your financial goals is important.

Amidst these changes, the spectre of potential mortgage arrears looms, urging mortgage holders to stay proactive, seek support, and communicate openly with lenders. Government assistance for vulnerable mortgage holders and renters becomes crucial in navigating these challenging times.

As mortgage holders, the key lies in remaining informed, adaptable, and proactive. You can navigate the ever-changing financial landscape and secure a stable future by staying informed about market trends, seeking expert advice, and engaging with available resources.

Remember, these financial shifts are not insurmountable obstacles but opportunities for growth and resilience. By taking control of your wealth and well-being, you can thrive in the face of challenges and build a solid foundation for your future. 

Don’t forget to talk to Questa if you are concerned or seek a way to build a more secure future for you and your family.