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What Do Interest Rate Rises Mean For You?

LATEST NEWS | 20.02.2022

At the start of this month the base rate was again increased to 0.5%. This was the second increase in less than three months having already risen from 0.1% to 0.25% back in December. These increases have been made in order to offset rising inflation. But how may you as a homeowner be affected by interest rate rises?

Why Are Interest Rates Rising?

Interest rates are on the rise as a result of inflation. Increasing inflation means that for many the cost of living is becoming more expensive and is a sign of the economy out-growing wages. The price of goods and energy for example, are currently on the rise.  The solution to rising inflation is to raise interest rates for borrowing, including for mortgages. An interest rate is the amount you are charged for borrowing by your lender. The most important rate in the UK is called the base rate. It's the rate charged by a central bank to other lenders when they borrow money. It often influences the interest rates then set by other lenders. The base rate can be changed as it was at the start of this month to 0.5%. It therefore holds considerable influence over our economy. However, how do these rising interest rates impact your own mortgage payments?  

How Will Interest Rate Rises Impact My Mortgage? 

You may be in luck if you have a long-term fixed rate mortgage. In which your interest rates remain fixed for a long period of time. Your loan repayments will not be subject to change as a result of inflation or any changes to the base rate.  While increasing interest rates may not affect every homeowner, they will likely impact those on the standard variable rate (SVR) or with a tracker mortgage. These are influenced by inflation and the base rate and those in either circumstance may see price changes in their mortgage rates almost immediately in response.  For first time buyers looking to borrow in the near future it may be worth considering long-term fixed rate deals with a mortgage advisor in order to bypass any uncertainty around interest rate rises. However if you are looking to buy much further down the line it may be, whilst not a certainty, that we begin to see house prices drop as demand also drops to avoid increasing interest rates.   

How To Prepare For Rising Interest Rates

Firstly in order to prepare for rising interest rates you should ensure you’re managing your finances correctly. If you have a mortgage deal where your interest rates may be subject to increase, it may be beneficial to put a financial plan in place forecasting ahead for any future price increases.  A secondary option, may be to look into moving mortgage deals. If you’re currently on a fixed rate deal that is ending shortly, you may want to begin the remortgaging process now. So as to avoid being automatically put onto a SVR where you may be subject to the consequences of high inflation. Check out our remortgaging guide if you are looking to do this.  However if you have a mortgage directly impacted by the base rate and still have six months or longer left on your current deal. Be wary of early repayment charges should you be looking to remortgage in this instance. Under these circumstances it may be in your interest to consider your options with the aid of a mortgage advisor. In order to determine the best solution for you. If you are looking for advice contact a member of our team here.
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