The Bank of England has warned that 5 million homeowners could be facing higher borrowing costs by the end of 2028. You might have read the headlines and be worried about what this means for you and how you’re going to afford to pay your bills with these changes. It might sound alarming, but it doesn’t necessarily mean everyone’s mortgages will skyrocket overnight.
We’ll explain why mortgage rates are rising, who is most likely to be affected, and what practical steps you can take if you’re concerned about higher repayments. Also, we’ll explore the support available if increasing mortgage costs are making it harder to stay on top of your finances.
Why Are Mortgage Rates Rising Again?
As much as it might feel like it when you’re frustrated, banks and lenders don’t decide to put mortgage rates up on a whim. They’re based on several economic factors; there isn’t a single reason why they increase. Recent military action in Iran has made headlines, and its impact has caused a shift in the global economy. The ripple effect of this is increased oil prices and growing inflation, which influence mortgage rates.
If inflation is expected to stay higher for longer, financial markets will likely anticipate that the Bank of England will keep the base rate higher. Even if the base rate doesn’t change straight away, the expectations that it will can affect the cost of borrowing for lenders.
Mortgage providers consider a number of factors when setting their rates, including market expectations around future rates. As the expectations change, lenders may increase the rates offered on new fixed mortgages and remortgage deals.
Alongside the international conflict, economic growth, government borrowing, and wider global financial conditions all play a role in how lenders price their mortgage products. That’s why mortgage rates can change even if the base rate stays the same.
Who Is Most Likely To Be Affected?
Who will be affected by the mortgage rate increases depends on the type of mortgage you have and when your current deal comes to an end. If you’re on a fixed-term mortgage, your monthly payments will stay the same until your deal expires.
But when you come to remortgage, you may find that the new rates are higher than what you had before. This could mean higher monthly repayments, especially if you fixed your previous mortgage when interest rates were low. Homeowners on a variable or tracker mortgage might see their repayments change sooner depending on the terms of the mortgage and whether the lenders adjust their rates.
The people who will most likely be affected by higher mortgage rates are:
- Homeowners whose fixed-rate mortgage is due to end within the next few months or years
- People planning to buy a home and take out a new mortgage
- Homeowners looking to remortgage to release equity or secure a new deal
- Buy-to-let landlords refinancing their properties
Keep in mind that everyone’s circumstances are different. The monthly amount you pay on your mortgage will be formed by your outstanding balance, the length of your remaining term, your credit profile, and the deals available when you come to remortgage.
If your fixed-rate deal is ending soon, reviewing your options early can give you more time to compare products and make sure you find the right deal for your affordability.
What Can You Do If Your Mortgage Deal Is Ending Soon?
Even though nothing you do will stop mortgage rates increasing, if your fixed-term deal is ending soon, there are steps you can take now to reduce the impact of the higher costs. Planning ahead gives you more control of your finances and can make the process a bit less stressful.
Review your mortgage early
You can arrange a new mortgage deal up to six months before your current one ends, so you’ve got time to compare rates and avoid moving on to your lender’s standard variable rate, which is often the most expensive option.
Reassess your household budget
If you think your mortgage rates will likely be increasing, it’s a good time to review your monthly income and outgoings. Finding areas where you can reduce spending or increase your savings now will make it easier to absorb the higher mortgage repayments when they start.
Speak to a mortgage adviser
An experienced mortgage adviser can help you understand which products are available to you based on your circumstances. They might be able to recommend a deal that’s more suitable than just accepting your current lender’s renewal offer.
Build a financial buffer if possible
It doesn’t have to be a large amount, but even setting a few pounds aside every month before your new mortgage starts can help cover additional costs or ease the transition to higher payments. This might not be possible for everyone, but any extra savings you can make will provide peace of mind when you need it.
Don’t ignore financial worries
If you’re already struggling to keep up with household bills or other credit commitments, you should seek support before things escalate out of your control. Missing mortgage payments can affect your credit rating and even put your home at risk.
Asking for help early doesn’t mean you’ve failed in any way, and the sooner you take action, the more options you’ll have to find the best path forward.
Get your mortgage payments on track today
Higher mortgage rates are a worry for many people; you’re not alone. Whether you’re coming to the end of a fixed-term deal or you’re finding it difficult to keep up with your current repayments, help is available to you.
At PennyPlan, we provide specialist, non-judgemental advice tailored to your circumstances. Our friendly team take the time to understand your finances and explain the options so you can find the right solution for you.
To discuss your concerns about mortgage rates or to seek advice about your finances, get in touch with us today.
