What will happen with mortgage rates ?

Mortgage Rates
The Bank of England has voted to hold interest rates at 0.1 per cent, despite intense speculation that mortgage rates would rise today for the first time in more than 18 months in order to keep runaway inflation in check.

The markets have priced in at least one rate rise, and possibly a couple more in coming months. Lenders have already started raising their cheapest mortgage rates, with very few sub-1 per cent deals now available.

Yet it is important not to panic. The vast majority of borrowers are on fixed-rate mortgages so even when interest rates do rise, they will see no change to their monthly payments. The quarter or so of borrowers on base-rate trackers, or on their lender’s standard variable rate (SVR), will see an uptick in mortgage payments if base rate goes up, but it will be modest. For example, a 25 basis points increase in interest rates will mean an extra £64 a month, or £756 a year on a £500,000 mortgage with an original rate of 2.5 per cent and 25 years left on the mortgage term.

Even if the likely movement of interest rates is upwards, lenders have money to lend and are keen to lend it. If they are to attract business, they will need to keep mortgage rates competitive.

While much has been made about lenders pulling their cheapest rates, this may have not so much to do with the potential of an interest rate rise as them hitting their targets for the year. It is usual practice to offer an attractive rate and then once the lender has done a certain amount of lending at that rate, they pull back from the market. As other lenders are doing the same, if a lender doesn’t pull their product, it will be inundated with business, affecting service levels and leading to an unbalanced mortgage book.

Those looking for a new mortgage or interested in refinancing should seek advice from a whole-of-market broker such as AWS Private Finance. Most mortgage offers last for up to six months, depending on the lender, so even if you don’t need a mortgage immediately, we can book a rate for when you do. We compare all the deals on the market; please get in touch for more information.
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