The Bank of England’s Monetary Policy Committee (MPC) will hold their final two meetings of 2021 on November 4 and December 16. It is during these meetings that a decision is made whether to increase, decrease or hold the base rate. At the last meeting, on September 23, each of the nine MPC members voted to hold the base rate at 0.1%
Will Interest Rates Rise Before The End Of The Year?
The fact that banks have been repricing recently would suggest that rates will rise imminently. Forecasts expect the Bank of England to increase base rate as early as next week and banks have been repricing accordingly.
What Does This Mean For Fixed Rate Mortgages?
Just a week ago, we had a plethora of 5 year fixed rate mortgages available at below 1%, yet these are now non-existent.
We expect 2 year fixed rates currently priced below 1% to disappear over the coming weeks, so now is the time to book a new rate or apply for a remortgage if your current mortgage product is due to expire within the next 6 months. The majority of mortgage holders in the UK tend to be on fixed rates, with around 80% of our clients opting for fixed rate mortgages.
Should I Choose A Fixed Rate Mortgage?
A fixed rate mortgage has the advantage of being able to budget by knowing what the monthly payments will be for a set period of time. The disadvantage of this can be a large increase in payments if interest rates rise significantly during the fixed period. Therefore, preparing for this change in finances is vital when coming to the end of your fixed rate term.
Will Interest Rate Increases Affect House Prices?
The rise in mortgage interest rates could have a dampening effect on house price growth over the coming year. Zoopla predicts that house prices will increase by 3% next year, which is significantly lower than the 13% growth we have experienced so far in 2021.
Will First-Time Buyers Find It More Difficult To Get On The Property Ladder?
If the Bank of England’s base rate increases drastically, then it could cause the rates of mortgages for first-time buyers with low deposits to rocket, making them unaffordable for the majority of applicants.
However, rising mortgage interest rates will hit those on fixed incomes and those who have a high debt to earnings ratio the most.
Is There Anything I Can Do To Reduce My Mortgage Payments?
Now is the time to take stock and assess the monthly budget for an increase in mortgage payments.
Anyone with a mortgage on a standard variable rate may not have really noticed they had reverted to this over the last year or so because lender’s variable rates have been very low. We see no reason why lenders will not pass on the full rate rise in their variable rates when base rate increases. Therefore those sat on a variable rate may see an increase in their monthly mortgage cost very soon. Regularly reviewing your mortgage rate and the options available to you is increasingly important in a time of rate rises.
How Fox Davidson Can Help
At Fox Davidson we are able to provide a no obligation review of your mortgage free of charge. We will also give you an honest opinion on your existing mortgage rate, and discuss the options available to you.