Mortgages & Interest Rates…
So…
It’s official (according to the media!)…
We are due a housing crash in the next few months…
‘Property values will drop by 20%’…
‘People won’t be able to afford their mortgage payments’…
‘People will be in negative equity’…
Do I think property values will drop by as much as 20% in the next few months? No, I don’t…
Do I think that property will drop over the next few months. Yes!
Do I think that a number of people won’t be able to afford their mortgage payments in the coming months? Unfortunately, yes.
Do I think that some people will be in negative equity over the coming months? Unfortunately, yes.
There’s a lot of media coverage at the moment about interest rates and mortgages.
The Bank of England
The Bank of England sets what’s called ‘the base rate’, which is what lenders use to base their own mortgage rates from. Or, at least that’s what they claim that they use to base their own mortgage rates from!
Interest rates are simply the part of a loan (for example, a mortgage!) that is charged as interest to the home buyers.
The typical interest rates over recent months and years have been historically low - circa the 2% - 3% range in early 2022 - for a number of loans.
That’s all changing at the moment…
The typical interest rates at this moment in time are anywhere from 4% (if you’re lucky!) to anywhere above 5%…
The value of the pound (against the dollar, for example) has dropped immensely (which opens up another incredible opportunity for US buyers in London and the UK!), which will likely result in the Bank of England raising interest rates even higher.
Some experts in the financial markets that the Bank of England base rate could rise to 6% by June 2023.
“To put this into perspective, your current mortgage payments each month are, say, £500, then they will increase to £1,250…
How many people can truly afford this increase?”
How might increasing interest rates impact my mortgage?
If you’re moving home, or you’re thinking about remortgaging, you’re incredibly likely to be impacted by the current changes.
If you have a fixed-rate deal (say, a 5-year fixed rate mortgage), then your currently mortgage repayments won’t increase until your current deal ends.
However, if you’re looking to take out a mortgage on a new home purchase or you’re going to be coming off your current fixed rate mortgage deal, then your monthly mortgage repayments with increase hugely.
Is this the end of fixed-rate mortgage deals?
In short, no!
A number of lenders have withdrawn their fixed-rate products from the market.
Other lenders have simply raised their prices in response to what’s currently going on in the market.
My fixed-rate mortgage is ending soon
If your fixed-rate mortgage deal is ending soon, it can be a very worrying and nerve-racking time…
If your current fixed-rate mortgage deal is, say, 2% and it will be increasing to, say, 5% that’s a 2.5X increase…
To put this into perspective, your current mortgage payments each month are, say, £500, then they will increase to £1,250…
How many people can truly afford this increase?
Speak to your bank and an independent mortgage broker
As always, it is so important to speak to your current bank if you already have a mortgage with them.
Speak to your current mortgage bank or lender and see what they can offer you when your fixed-rate mortgage period ends.
Also talk to an independent mortgage broker.
These are concerning times for many people…
My number one piece of advice would be don’t worry about what the media is portraying and try not to listen too much to the general scaremongering.
Get a plan in place and speak to your mortgage lender/ bank and an independent mortgage broker and see what your actual options are.