No doubt you have heard that the Bank of England base rate has recently increased again this year. It is now the 3rd time, with the first in February at 0.5%. We are now at 1% as of the 3rd of May.
Increases in the base rate are implemented to help push inflation down. Higher interest rates make borrowing more expensive, which in turn encourages saving. This causes a reduction in people’s spending.
The Bank of England monitors inflation and on a monthly basis adjusts the Bank rate according to this. This then affects all other interest rates. Unfortunately, this has also been made worse by Russia’s war in Ukraine. With a fresh jump in home energy bills expected in October, it forecasts inflation could rise above 10% this year. This is the highest level since 1982.
This method to stabilise the economy takes time and it will be a while before we benefit from the full effect. Increasing the cost of living and generally making our purse strings tighten… and hence reding inflation.
Regarding your mortgage, if you are on the variable rate or a tracker product you are likely to see an increase in your monthly payments. If you have a fixed product this will not be affected until the expiry. It is worth considering the costs of remortgaging to a new lender early if you are within the latter years of a fixed period as you risk much higher rates if you wait until the expiry. There will be early repayment charges. However, calculating the costs of paying this off and fixing for a further 5 years with a new lender could be more financially beneficial. Speaking to a mortgage broker will give you reassurance as to whether investigating this is your better option.
At present we are advising all clients to fix for 5 years, to secure their monthly payments for this time. If you do decide on a move within this fixed period, the mortgage can be ported and topped up accordingly. Confirming this is in an option with your lender/ broker before applying is essential.
Article by Affinity Mortgages.