The Bank of England recently raised interest rates from 1.25% to 1.75% to combat rising inflation. This 0.5% increase was the biggest single leap since February 1995, and any loan or mortgage directly associated with interest rates will be impacted. Keep reading to find out how the interest rate rise could affect you.
Why did the interest rate rise happen?
The Bank of England is tasked with keeping the UK’s inflation rate at 2%, and since inflation stands at a whopping 9.4%, the interest rates have increased to slow down rising prices and ultimately reduce the rate of inflation. How? Higher interest rates make it harder to borrow money, meaning people spend less overall.
How does the rise impact mortgages?
If you’re a homeowner on a standard variable rate (SVR) or variable mortgage, you will be affected by the increase. Since these mortgages are directly linked to the base rate, your payments will also rise. If you’re wondering when your payments will change, it is worth contacting your lender to find out.
I’m on a fixed-rate deal, will I be affected?
For those of you on a fixed-rate mortgage, you won’t be affected by higher interest rates until your deal expires – and by then, you might notice that rates are significantly higher than when you first took your deal. So, if your fixed-rate deal ends in the next three to six months, you should lock in a new rate now. That way, you’re protected from further increases to the base rate.
How do I prepare to remortgage?
We advise you to use Moveable to get all your documents in order. Besides accessing free mortgage guides, Moveable will remind you to make sure your ID is up to date, confirm your address is correct, and check your credit report before applying. Once you have all your documents sorted, you should look at our mortgage affordability calculator to get an idea of what deals are available.
To learn more about the types of mortgages available and what might be the best for you, read our article here.
Will the interest rate rise affect first-time buyers?
When interest rates are low, people are able to borrow money more cheaply. And when high, it’s more expensive to borrow. This increase in rates, coupled with the cost-of-living crisis, is concerning for first-time buyers who may feel they cannot afford to climb onto the property ladder due to high monthly repayments.
The rise will mean monthly payments for the average first-time buyer will jump from £976 to £1030, according to Rightmove. As a result, first-time buyers could see monthly mortgage payments increase to an average of 40% of their gross salary, a level not seen since 2012.
What can Moveable do to help?
Moveable is a free and easy-to-use platform that helps you with the complicated process of buying a home. With expert guides and price-comparison tools, you can access everything you need to lower your moving costs. Create an account for free here and start your home-moving journey today.