For a while now, homeowners have benefitted from low interest rates which have helped make mortgages and mortgage repayments manageable. However, with inflation soaring we’ve seen an impact on mortgage rates, which has understandably caused concern amongst homeowners about how increased interest rates will affect their monthly mortgage repayments.
But why are mortgage rates suddenly going up, and when can we expect them to come down again?
Why are mortgage rates going up?
There has been a lot of discussion in the media around how the Bank of England base rate is affecting mortgage rates. The rate that the Bank of England charges other banks and other lenders when they borrow money is known as the 'base rate'. This influences the interest rates charged by lenders for mortgages and given on savings accounts - so if the base rate goes up, interest rates will also go up.
For the past few years, the Bank of England base rate has been relatively low which means that anyone borrowing money (such as a homeowner taking out a mortgage) would have benefitted from this lower borrowing rate. However, the Bank of England is trying to get inflation under control at its target rate of 2%, and raising interest rates is a way to help tackle inflation. The raise in interest rates is what is affecting mortgage rates.
However, the Bank of England base rate isn’t the only factor currently affecting mortgage rates: there are a number of other economic influences, such as Russia's decision to invade Ukraine, the energy crisis, and the recent mini-Budget announcement. All these factors are having a knock-on impact and forcing lenders to price in a way that ensures they avoid losses.
When will mortgage rates start to go down?
This year, numerous economic factors have combined to create the ideal conditions required for rates to rise. Rising inflation and a falling pound has left the Bank of England little choice but to continually increase the base rate.
Unfortunately, no-one has a crystal ball and it’s difficult to predict exactly what will happen next, or when interest rates will start to go down.
However, rising rates could reverse if the UK plunges into a recession, inflation starts to fall and the pound recovers against the dollar. If inflation falls back to target then the Bank of England could have the ability to reduce rates.
There is also a chance that we may see a downturn in the property market. For years now, house prices have continued to rise, but many experts are suggesting that the property bubble is finally about to burst. A downturn in the property market may reinvigorate competition between lenders, and help to reverse rising rates.
What should you do if you need to remortgage now?
There’s no doubt that it is currently a confusing and worrying time for anyone wanting to mortgage or remortgaging. There are a lot of factors to consider, including which mortgage deal is the best for you, and how long you should fix for.
If you are due to remortgage, or are looking to get a mortgage for the first time, the best thing to do is seek financial advice. A mortgage broker can help talk through your options and discuss the best mortgage deals on the market today.
Taylor Made are professional independent mortgage experts and can offer friendly, helpful advice on which mortgage deal would be the best for your circumstances, as well as offering today’s best mortgage rates.
