With an anticipated rise to interest rates in December and into the new year as we come out of the COVID-19 pandemic, there’s a lot for homeowners and homebuyers to consider when it comes to taking out a mortgage. But what does a potential rise in rates mean to mortgage rates?
Well, the first point to consider is how homeowners have really benefited from super low rates over the past few years. Certainly, these rates are some of the lowest we have ever seen.
Research suggests that initially, an interest rate rise will affect one in four borrowers, as these are those on variable-rate products. We have seen some lenders starting to react and raise their rates already. Whilst fixed rates remain competitive, some of the lowest offers may soon disappear.
Peter Vandervennin, Director commented that:
“I think a lot of the lenders that have repriced have factored in the 0.25% increase. They are likely going to keep the same until the new year to assess how it comes out the other side.”
The Bank Of England is due to meet on 16th December and this is when we can expect to hear of any increase. Currently, the base rate is 0.1%, however investors expect the rate to rise above 1% by the end of 2022. This will be biggest rise since 2006.
So how does this affect homeowners and buyers. Well, it means that mortgages are likely to get more expensive. As an illustration, if mortgage rates increased by 0.5 percentage points, the average loan would be 1.7%. On a £200k mortgage, this would add nearly £50 a month to the repayments.
Bearing in mind that an additional £50 per month will cost £600 per year, our advice is that if you are on (or coming up to) a standard variable rate to fix as soon as you can. You may want to consider fixing for longer as whilst it may cost more, it would serve as an insurance policy against rate rises.
If you are considering moving or purchasing within the next 3-6 months, then now is the time to get your Agreement In Principle and take advantage of today’s rates before they are no longer available.
When it comes to the buy-to-let sector, an interest rate rise could quadruple mortgage payments for some, however those with a limited company structure are likely to remain somewhat unscathed as limited company rates have remained pretty stable over the past five years at just under 3% for a two year and 3.2%+ on a five year fixed. The only product that is more likely to experience an increase in rates is an 80% loan to value limited company mortgage.
If you are purchasing a property and have any questions, then we will be more than happy to help where we can. You can either call us on 01322 553282 or contact us online.