How will the interest rates hike affect your mortgage?

by | Oct 9, 2022

Many people in the UK are currently worried about how the rising interest rates will directly affect them and their mortgage. This blog will describe the current affects regarding rising interest rates on mortgage payments, new mortgages, house prices and then also provide possible action you can take linked directly to the issue at hand.

How the interest rates will it affect mortgage payments?

The roughly 2.2 million people on a variable rate mortgage, will unfortunately be hit hard by rising interest rates. With many people now facing the fact of paying hundreds of pounds extra a year and for those with bigger loans it will be thousands.
Around half of the 2.2 million are either on a tracker or a discounted-rate deal, whereas the other half are paying their lender’s an SVR (standard variable rate). The tracker follows the base rate therefore if this is you then your payments will certainly soon reflect the full rise. Previously, on a tracker at 3.5%, the interest rate would rise to 4.25%, adding £59 a month to a £150,000 repayment mortgage with 20 years remaining. If that was an interest-only mortgage, it would be an extra £93 a month.
Most SVR’s will go up although not necessarily by the full 0.75 points and some lenders will take time to announce what they are doing.
Although, about 6.3 million UK mortgages are fixed-rate home loans, these borrowers are insulated until their deal expiration but for most this will be in the next few weeks/months.

How will interest rate affect new mortgages?

It continues to be a tough time for anyone looking for a new fixed-rate mortgage. The price of new fixes is already charging upwards with the average new two-year fixed rate home loan surging from 4.74% on the 23rd of September to 6.65% by the 20th of October.
With fixes remaining significantly more expensive, many borrowers who need a mortgage quickly may choose to go down a different route. This is usually a tracker deal and especially those without any early payment charges as this offers greater flexibility in many current situations.

Will house prices fall?

A key driver of house prices is what people can borrow; therefore, higher borrowing costs will have a large impact.
Zoopla have stated that the supply of available homes was below average, creating a scarcity that would in-turn support pricing. Although, iPlace Global claim that 16% of UK homeowners are looking to sell up in the next year.
Britain’s largest building society, Nationwide, have said that UK property values fell for the first time in more than a year last month in October, with the average price of a home down by 0.9% compared with September.
Zoopla have also stated that the most likely scenario for 2023 is a “modest decline in house prices of up to 15%”. Savills have subsequently predicted the average UK house price will fall by 10% in 2023 but then begin to gradually increase from 2024 onwards.

What action should I take?

Ensure that you are aware of all the figures and facts surrounding your own mortgage and know exactly how much your mortgage will go up. You can work this out using the extremely useful mortgage calculator provided by the BBC news website.
Moneyfacts expert Rachel Springall has said that it’s imperative that both those looking to buy a property or refinance their existing house, should look for independent advice from a broker to navigate all the options available to them. Rachel has also cautioned against locking into a fixed rate mortgage now even though it might seem attractive for those who seek peace of mind with their repayments.
If you’re struggling to repay or believe that you will in the foreseeable future, then contact your lender for extra support as soon as possible. With one of the UK finance spokespersons stating, “lenders stand ready to help customers who might be struggling with their mortgage payments, with a range of individual tailored support there readily available for your use”.

For help and advice when selling or purchasing a new property, contact our helpful and friendly team at Farr & Farr today.

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