You may have seen the recent headlines that show the UK inflation rate hit 4.2% in October, its highest level for almost 10 years. And the rise in inflation might not stop there, with the Bank of England (BoE) predicting that the rate could rise to 5% in 2022.
As rises in the cost of living increase, most commentators expect the BoE to respond by raising the base rate. While this might be good news for savers who have had to endure rock-bottom interest rates for the best part of a decade, it could result in higher payments for anyone looking for a new mortgage.
Read on to find out what’s likely to happen, and how working with a broker can add real value in a world where interest rates are rising.
Base rate likely to increase more than once in the next 12 months
Ever since the base rate fell sharply during the global financial crisis of 2008/09 it has sat below 1%.
The most recent change to the base rate was a reduction to a record low of just 0.1% in response to the arrival of Covid-19 in the UK in March 2020. The Bank cut the rate to encourage spending and stimulate the economy as the pandemic struck.
Data from the Bank of England
Experts now predict that the base rate will head towards 1% in 2022, particularly if inflation remains above the Bank’s target of 2%.
It’s interesting to note how quickly sentiment has changed. It was only a couple of months ago that investors were not anticipating the first move from the BoE until the summer of 2022.
What an interest rate rise would mean for your mortgage
Right up until September 2021, mortgage rates in the UK continued to fall. FTAdviser report that the average rate on new mortgages fell to 1.78% in September but, in October, lenders started to hike their rates in anticipation of a base rate rise.
If you’re on a fixed-rate deal, then any increase to the base rate or your lender’s standard variable rate (SVR) won’t affect you immediately. You’ll be protected against the rise – although remember that, when your fixed rate ends, your mortgage is likely to revert to a higher interest rate.
If you’re on a variable- or tracker-rate mortgage, then any increase in the base rate will see a rise in your repayments. This is Money estimate that this will affect one in four homeowners.
With rates set to rise, here are three ways that working with a broker can help you.
1. Save money on your existing mortgage
According to the Guardian, if you have a £200,000 mortgage over 20 years, with a variable interest rate at 3.59%, you will pay an additional £15 a month if the rate goes up by 0.15%. A further 0.25% hike to rates would see your repayments rise by a further £25 each month.
So, if you’re currently on a variable mortgage rate, such as your lender’s standard variable rate (SVR), it could be wise to consider switching onto one of the deals currently available.
While many lenders have increased their rates, deals remain at historic lows and so it’s still possible to save a significant sum through a remortgage.
We can scour the market to find the most appropriate deal for you – including many lenders that you can’t access directly. We can also consider the various costs included with each remortgage deal to establish which will save you the most money over the term of the deal.
For example, if you have a large mortgage then paying a slightly higher arrangement fee to secure a lower interest rate could save you more money.
2. Save time by letting an expert do the hard work
If you’re thinking about getting a new mortgage, it may be tempting to look at a newspaper or online “best buys” page and simply apply for the cheapest deal.
However, as Moneyfacts remind you: “Borrowers should always keep in mind that the lowest rate may not be the best, or most cost-effective, deal for them.”
Furthermore, if your circumstances are in any way out of the ordinary, then you might find that the lender offering the “cheapest” deal simply won’t accept your application. This may be the case if you’re self-employed, you need a larger mortgage, or you’re a foreign national.
When you work with us our first step is to find a lender who is happy to lend to you based on your unique circumstances. We have access to dozens of lenders, including many that the general public can’t access. We also have underwriting contacts at many banks and building societies so we can discuss your specific requirements to agree the borrowing you need.
3. Secure low-rate deals before they are withdrawn
In recent weeks, many major lenders, including TSB, Santander, Barclays, and NatWest, have increased the interest rates on some of their most popular products.
If you’re moving home or looking for a remortgage in an environment where interest rates are rising, working with a broker can help you to navigate the fast-changing market.
For example, many lenders allow us to “reserve” funds on specific deals, meaning we can effectively secure a tranche of funds on the interest rate you want, even if that deal is withdrawn and repriced upwards. The lender will then typically give you a deadline to complete the transaction.
We also frequently get advance notice of lenders withdrawing low-rate deals. What this means is that we can help you to move quickly and secure the product you want so you don’t miss out.
Get in touch
If you’re concerned about rising interest rates, or you’d like to find out how we can help you to secure the low-rate deal you’re looking for, please get in touch. Email [email protected] or call us on +44 (0) 20 3411 0079.
