In September, the Bank of England increased interest rates from 1.75% to 2.25%. This is the seventh increase since December 2021, when the bank rate was merely 0.1%. It also raises the bank rate to its highest level in 14 years.

Mortgage costs are increasing as a result of rising interest rates, fluctuating exchange rates and market instability. Since the end of September 2022, lenders like NatWest, TSB, Santander, Halifax, Virgin Money and Skipton Building Society have all made adjustments to the price and policies of their mortgage packages.

Considering how frequently events change, it's important to keep up to date and understand how the ongoing changes affect your individual circumstances. It can often help to seek unbiased advice to understand the best approach for your needs. 

What interest rates rising means for mortgages

Following the recent bank rate increase to 2.25%, the estimated two million homeowners on variable rate arrangements, such as base rate trackers, could experience an increase in their monthly repayments. For instance, a £200,000 loan with a tracker rate that increases from 3.5% to 4% will cost around £60 more per month.

First-time buyers and remortgagers could also face higher mortgage expenses when looking for a deal, because the cost of new fixed rates has already accounted for the most recent increase in price.

With the help of our mortgage calculator, you can determine the estimated monthly cost of your mortgage at different interest rates.

Why are interest rates rising?

Interest rate increases are a tool used by the Monetary Policy Committee of the Bank of England to ‘cool’ the economy and contain increasing inflation. In comparison to the government's aim of 2%, the Consumer Prices Index gauge of inflation has already reached  9.9% in the 12 months leading up to August 2022.

Additionally, there are worries that inflation may continue to soar, forcing the Bank of England to raise interest rates from their current level of 2.25% to as high as 6% by the end of the next year. This is because the pound experienced a significant decline on the foreign exchange markets at the end of September 2022.

What can you do?

The acceptance standards of lenders vary from one to the next and are flexible; changes have been made quickly in response to the crisis in the cost of living. For instance, whereas one lender may solely consider your base wage, another may consider commission or overtime.

We strongly advise using a mortgage adviser to help you get through the complexity. With unbiased advice, they can discover offers for you and will have access to various deals (including some product transfers) that are only available through brokers. They also know the details of most lenders' approval criteria, which aren't readily available to the general public. If you’re unsure about how to choose a trustworthy adviser, see our guide.

For more information on balancing your income and expenditure, book an appointment with us.

Disclaimer: Whateley Wealth Management is not responsible for any external site content.

Disclaimer: The purpose of this blog is to provide generic information and should not be interpreted as a personal recommendation or advice.

Disclaimer: As a mortgage is secured against your property, it could be repossessed if you do not keep up the mortgage repayments. 

 

Picture sources: 

https://unsplash.com/photos/pmhdkgRCbtE

https://unsplash.com/photos/1zO4O3Z0UJA