ortgage rates for two-year fixed rate arrangements have reached six per cent for the first time since December 2022, ahead of the upcoming Bank of England interest rate decision.
In recent weeks, mortgage lenders have increased rates and withdrawn offers rapidly, raising expenses for homeowners looking for new agreements.
Since the majority of households have fixed rate agreements, this won’t instantly have an impact on everyone. However, as consumers exit these agreements during the following year, they would face an increase in borrowing prices of an average of £2,900, predicts think tank the Resolution Foundation.
Rishi Sunak appears to have ruled out any additional assistance for homeowners.
Between July and September, over 400,000 people will see their current fixed packages expire, which is a significant number. Many will have to plan their finances to accommodate monthly repayments that are several hundred pounds more expensive than they are used to.
Why are mortgage rates rising?
Interest rates are a key factor in setting mortgage rates.
Recent high inflation and good wage growth numbers indicate that interest rates will likely rise more than anticipated, increasing borrowing expenses.
How are mortgage rates linked to interest rates?
Only some mortgage rates are impacted by interest rates. How much these will affect your mortgage depends on what type you have. Take a look at our guide to mortgage types for first-time buyers for more information.
If you are on a fixed-rate mortgage, you don’t need to be immediately concerned about an increase in interest rates. Regardless of whether interest rates increase or decrease over the agreed-upon time frame, whether that’s three years, five years or more, your mortgage rate and monthly payments will not change.
You will, however, automatically switch to your mortgage lender’s standard variable rate (SVR), which is determined by the Bank of England base rate, after your fixed term expires. You’ll probably pay a higher interest rate on your mortgage if this has increased, and probably deal with larger monthly payments, too.
Discounted, tracker or SVR mortgages are usually impacted by interest rates, therefore, if you are on one of these mortgages you can expect increases.
What is the next interest rate decision?
The Bank of England will next convene this Thursday on June 22, 2023, to determine the appropriate level for interest rates.
The current bank rate is 4.5 per cent. It is expected that this will increase in 2023.
The bank rate increased by four per cent in March. According to Money to the Market, the market anticipates that by July of this year, interest rates could reach 4.8 per cent.
When might mortgage rates go down?
Mortgage rates decreased after reaching their peak in the autumn of last year, but due to inflation that has remained close to a record high, they have recently increased once again.
As a result, some experts now predict that the Bank of England will keep raising interest rates in 2023, and several lenders such as Natwest are preparing for this by raising mortgage rates.
Although this is the case, it has been expected that interest rates will eventually go back to their pre-pandemic levels, which will lower mortgage rates in the following years.
What is the government doing about it?
Former Bank of England deputy governor Sir Charlie Bean said earlier this month that it would be ‘risky’ for the government to intervene in order to protect mortgage holders from increasing interest rates.
Instead of discussing new ways to help, Rishi Sunak pointed to existing support for first-time buyers which has been introduced to help get them on the property ladder.
The prime minister said: “There is also support available for people – we have the mortgage guarantee scheme for first-time buyers, we have the support for mortgage interest scheme to help people as well. That’s why one of my first priorities is to halve inflation.”
The best person to speak to about your mortgage is your lender or a mortgage broker to find out the rates you can remortgage at.
