It seems we have been on a constant upward curve of interest rate rises since December 2021 and each time there is a Bank of England meeting, we silently hope that it will be the last. Unfortunately, we are likely to see one more increase in interest rates this May, before inflation starts to fall over the rest of the year. If we do see another rise, this will be the 12th in a row, likely to push interest rates up to 4.5% which will again put a huge strain on household incomes, alongside the rising costs of food, fuel, and energy prices.
Without any definite answers until the meeting takes place, we thought it would be helpful to troubleshoot in case of the likely event of another rise.
What is the Bank of England’s prediction for the next meeting?
It was predicted that the UK inflation rate would have fallen to 9.8% by March this year, but the Office for National Statistics figures showed that it fell by less than expected, to 10.1%. After this news, the likelihood that the BoE will raise interest rates again to try and combat this seems to have increased, with the market pricing in a 97% chance of a rise to 4.5% in the next interest rate meeting on 11th May.
Presently, the base rate for interest sits at 4.25%, which was set at the last BoE meeting back in March, but over the next 6 months, the market predicts a rise of around 0.75%, taking the base up to almost 5%, which we may see reflected in our mortgage payments.
What does this mean for UK mortgages?
We have seen mortgage rates surge in recent months and despite the back and forth on when they are likely to level out, it is wise to prepare for a continued increase in the near future.
Historically, the base rate for interest has sat around 5% but we have seen an increase 11 times so far since December 2021 and with inflation still proving problematic, it is unlikely to see this number level out within the next 6 months.
This means a typical 25-year mortgage (not fixed) would increase by £38 per £100,000 borrowed. On a £200,000 variable rate or tracker mortgage, monthly payments could increase by £46 a month, which is far more than a little back pocket spare change.
What to do if rates rise again
This being said, it is not definite that rates will rise again, or even to this level, but the current trend the rate has taken and with inflation not dropping to its predicted rate means that it is highly likely we will see another interest rate rise. It’s understandable to feel anxious about your finances, in particular the amount your monthly mortgage payments could increase, and it’s always better to act sooner rather than later. How you’ll be affected by an interest rate rise depends on what type of mortgage you’re on and when your deal comes to an end. Using an online mortgage calculator to figure out your monthly payments and working out what you can afford is a great starting point. Here are a few other ways to help if we see further mortgage rate rises:
Plan your finances.
Creating a financial plan is a great way of working out how much you spend each month. Recording your monthly incoming against your outgoings creates a clearer picture of what you can afford if rates do rise and you need to apply for a new mortgage, are due to remortgage from a fixed rate, or have a tracker or variable rate mortgage. If you are due to see an increase, then you can clearly see where there are places you can cut back.
Build up your credit score.
If you have had issues in the past with your payment history, then it may be a good idea to work on improving your credit score. Although it might not seem like the most important point to focus on right now, improving your credit score can stand you in good stead in getting the best rates available when it comes to remortgaging.
Overpay where possible.
Any interest rate rise that we see takes a little while to affect your monthly spending, so it may be a good idea if it is financially viable for you to overpay on your mortgage. Taking advantage of the lower rate we currently have and paying more than your usual monthly rate can mean future monthly payments reduce as borrowers reduce the balance of their loans. Or if we do see another interest rate rise, you may not see the full effect in your monthly payment, having reduced the amount you owe previously.
Seek help from a mortgage advisor.
Financial worries can bring a huge amount of stress to everyday life, so speaking with a professional mortgage broker, who is well-equipped to walk you through every scenario and mortgage option is the best option available. It is advisable to equip yourself with as much knowledge as possible and to work out which type of mortgage fits with your current finances but understanding the market and offering professional and helpful advice is the job of a mortgage advisor and can really help in times of uncertainty.
Expert mortgage advisors: How TaylorMade can help you
If you’re due to remortgage soon or just want to talk about your options with the next Bank of England meeting looming, then TaylorMade can help to provide everything you need to know. We offer jargon-free, helpful advice to equip you in understanding today’s turbulent economy and how it could impact you and your finances.
We are expert mortgage advisors who can offer as much certainty as possible to enable you to make the best decision with your mortgage finance. Get in touch today.
