Another Rise in Interest Rates Set to Impact Mortgages
Bank of England faces a ‘balancing act’
Following a surprise rise in inflation in February, the Bank of England has announced today (23 March 2023) that it will be increasing interest rates for the 11th time in 18 months. This is despite the bank rate already being at its highest level for 14 years.
As analysts predicted, the Bank has announced a 0.25% rise in interest rates as part of an attempt to control and reduce inflation. But there is the risk that this move could negatively impact financial stability – particularly for mortgage-holders and those attempting to buy a property.
Given that just under a third of households in the UK have a mortgage, this latest rise in interest rates will likely have a significant and widespread impact. And according to the Financial Conduct Authority, up to 356,000 mortgage borrowers could face difficulties with repayments by July 2024.
Many mortgage-holders will see increase in monthly repayments
As interest rates go up, more than 1.4 million people on tracker and variable rate mortgage deals are likely to see an immediate increase in their monthly repayments.
A rise in interest rates of 0.25% will mean that those on average tracker mortgages will pay around £24 more each month. And those on variable rate mortgages will pay an additional £15.
If you combine this with the price hikes that have taken place in recent months, it’s easy to see how someone on a variable rate or tracker deal could start to struggle with their monthly mortgage bills.
Fixed-rate mortgage holders won’t see any change in their monthly repayments for now. But when it comes to remortgaging, the increase in interest rates could make it significantly more expensive to take out another fixed-rate deal.
An additional hurdle for first-time buyers
Over the last few months, first-time buyers have faced significant upheaval in the housing market. It’s estimated that the average interest charged on a two-year fixed-rate deal has increased from 2.29% in November 2021 to 5.32% – a rise which many cannot afford.
And while forecasts have suggested that interest rates could drop in the summer, there is still a considerable amount of uncertainty. This has made it difficult for first-time buyers to know when the best time to take out a mortgage is.
Some lenders have attempted to make it easier for house buyers to get a foot on the property ladder. Santander, for example, has announced that it is reducing mortgage rates across its residential fixed-rate products. But this isn’t reflective of the situation for the majority of home-buyers.
Buying a property or remortgaging can be incredibly stressful. A conveyancing solicitor could help you to navigate the process and remove some of the burden from your shoulders. To find out more about how we could help you, give us a call or enquire online.
