If you have ever seen an item in a store, spent time thinking about whether it’s right for you, and then gone to complete the purchase only to find out it’s now more expensive, you’ll know how frustrating that can be.
Sometimes you have to act now, rather than waiting and hoping that something might come down in price later on. This has been particularly true over the last few years as the price of many goods and services has risen sharply.
In many ways, the same is true with your mortgage. If you are looking to switch your deal now, or putting off buying a home in the hope that rates may fall later on, you could end up being disappointed.
Read on to find out why acting now, and not waiting and hoping for rate cuts, could be a prudent approach.
Higher mortgage rates mean increased repayments for many
Since the outbreak of war in Ukraine, and the chaos caused by Liz Truss’s short-lived administration, interest rates in the UK have risen sharply. As of May 2024, the base rate stands at a 15-year high of 5.25%.
This increase in rates has had a knock-on impact for many homeowners. In fact, the BBC reports that mortgage payments will rise by at least £500 a month for nearly 1 million households by the end of 2026.
Now, with inflation finally starting to come down, the likelihood of interest rates easing has increased. So, you may be tempted to hold off accepting a mortgage rate in the hope that deals will become cheaper later on.
Indeed, data reported by FTAdviser shows the value of new mortgage commitments decreased by 6.6% from the previous quarter, to £46 billion – suggesting people are taking a “wait and see” approach.
Here are four practical reasons why waiting and hoping for a better mortgage deal might not make financial sense, and why taking a deal now could benefit you.
1. Interest rates may have to remain higher for longer
As inflation reached more than 11% in 2023, the Bank of England (BoE) took the decision to raise interest rates. The theory is that more expensive borrowing reduces consumer demand, bringing down prices.
Now inflation has fallen, many hope the reverse is true, and that interest rates can now start to fall.
However, inflation is proving to be more stubborn than many economists feared. While the Office for National Statistics reported the rate of inflation was 3.2% in the year to March 2024, it is still much higher than the BoE’s target of 2%, and fell by less than many predictions.
The result is that many experts have pushed back forecasts of when the BoE may act, meaning rates may stay higher for longer.
2. The cost of mortgage deals is going up, not down
Expectations about the future direction of the BoE base rate have a major influence on the mortgage rates offered by lenders. Banks and building societies generally price the likely trajectory of interest rates into the deals they offer now.
With rates set to remain at or near their current level, some of the UK’s biggest lenders have confirmed mortgage rate increases. In late April the BBC reported that HSBC, NatWest, Barclays, and Leeds Building Society all raised the cost of some of their fixed-rate deals.
So, had you delayed taking out a deal a few weeks or months ago in the hope that rates would fall, it’s likely that you’d actually pay more now than you would have previously.
3. Waiting could mean a period on your lender’s standard variable rate (SVR)
When your existing fixed-, variable-, or tracker-rate deal ends, you’ll normally move onto your lender’s standard variable rate (SVR).
Moneyweek reports that the average SVR in the UK in March 2024 was 8.18%. So, if you don’t act quickly and wait for a more attractive rate, your mortgage payments could rise sharply if you end up on your lender’s SVR.
Just a couple of months at a substantially higher interest rate could negate any savings you might potentially make by waiting for a slightly cheaper deal in future.
4. Good brokers will help you switch to a cheaper deal if one becomes available
If you are buying a home or looking to switch your mortgage in the next few months, locking into a deal now could be a prudent step for the reasons you read above.
It’s also worth reiterating how working with a good mortgage broker can add value during this process.
If a more competitive deal were to become available between the time of application and completion, a good broker will keep an eye on the market and switch to a new deal in good time for you.
Of course, if rates rise during this time, you also have the peace of mind that your broker has locked in the rate you applied for. It can be a real win-win situation in an environment where the likely trajectory of interest rates is uncertain.
To find out how we can help you secure a competitive deal for your mortgage, please get in touch. Email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
