The current situation
Earlier this month, the Bank of England (BoE) increased the interest rate, also known as the Bank Rate, by 0.5%, taking it up to 5%.[1]
Inflation is still sitting at just under 9%,[2] well above the BoE’s 2% target. While no one can predict for certain what may happen, the BoE may need to increase the interest rate further if inflation persists until is back under control.
What does this mean for homeowners with a mortgage?
Economists from the independent think-tank Resolution Foundation have said that current hikes in mortgages rates are worse than those seen in the 1980s and 1990. [3] And because mortgages today are higher in relation to earnings compared to 25 years ago, the impact may be felt more intensely for households now than it was back then.
Many borrowers on Standard Variable Rate (SVR) mortgages or Tracker mortgages may have already experienced an increase in their monthly repayments as a result of this latest interest rate rise, due to these mortgage products being directly linked to the Bank Rate.
However, those who are on fixed deals won’t be subjected to a rise in repayments until their current deal comes to end. For homeowners whose deals are coming to an end between now and the next interest rate review on 3rd August 2023, or for new homebuyers, the average rate for a two-year fixed mortgage is currently 6.23% with the average rate for a five-year fixed deal sitting at 5.86%.[4]
Borrowers remortgaging onto a new deal could experience an increase in yearly mortgage payments by, on average, £2,900, according to experts at the Resolution Foundation – an unwelcome situation for many households during a cost-of-living crisis.
How can we help?
It’s important to note that while the average rate for a two-year fixed deal is sitting above 6%, it is just that: an average. There may be cheaper products available, which is why it’s important to use a mortgage adviser with access to the whole market.
This is where we come in. Our B Mortgage Services brokers are qualified to search for products across the market to ensure you get the best deal for your circumstance. If you aren’t sure what remortgaging involves, you can download our free handy guide here.
