Understanding Mortgage Rates And Inflation

If you’re thinking of buying a house in the UK, it’s important to be aware of what’s going on with inflation and interest rates. Inflation is when prices rise, due to an increase in the cost of goods and services. When inflation rises, mortgage rates often follow suit, meaning mortgage repayments may become more costly for buyers.

The Past 12 Months

In the past 12 months, inflationary pressures have put a strain on UK households. To tackle this issue, the Bank of England had to take measures and raise interest rates for citizens – leading us into an economic hardship as money was taken off our hands. The BoE intended to make this process gradual but after autumn’s “mini” Budget it all took a different turn: fixed-rate mortgages experienced drastic increases in prices which later stabilised only recently yet further hikes are predicted down the line this year.

Fixed Rate Mortgages

For many homeowners, a fixed rate mortgage can provide the security of knowing exactly how much their monthly payments will be for an agreed-upon period. However, if you want to break away from that agreement before it ends, there is typically a fee associated with doing so. A variable rate option could cost less upfront and adjust along with changes in Bank Rate; yet lengthy borrowing periods tend to incur higher interest rates as lenders have your money “tied up” longer. The best buy tables currently show lower costs on variable mortgages than ones at fixed rates – worth considering when manoeuvring through today’s uncertain landscape!

Interest rates

More than 1.4 million households in the UK are now facing the prospect of interest rate rises when they renew their fixed rate mortgages in 2023.

The majority of fixed rate mortgages in the UK (57%) coming up for renewal in 2023 were fixed at interest rates below 2%. Those deals that are due to mature through the course of 2024 will be from two-year fixed rate deals made in 2022 and five-year fixed rate deals made in 2019, when mortgage rates were generally higher than 2%.

Inflation

The Bank of England reviews inflation levels every month. If they are above their target rate then they will usually raise the interest rate – this is known as ‘monetary policy’. A rise in the base rate affects mortgage payers across the country as it increases mortgage costs for those who have variable or tracker mortgages; however those with fixed-rate mortgages won’t be affected until their mortgage term ends.

Cost Of Living Crisis

With increasing living costs and climbing rates, homeowners may struggle to keep up with their mortgage payments. This could result in defaults or drastic budget cuts that can spell potential danger for our economy’s steadiness.

Mortgage Rates

It’s no secret that times are tough right now, and with mortgages an essential part of many peoples’ financial situation it is more important than ever to make sure you’re on top of your payments. That being said, rising inflation rates coupled with a stagnant income tax threshold can leave people feeling overwhelmed when managing their mortgage. Fortunately we have some expert tips for wisely handling this crucial responsibility!

It is important to keep an eye on inflation and mortgage rates when buying a house in the UK, as it can have a huge impact on affordability. It’s always best to speak to one of our independent mortgage advisors or financial experts for advice before making any decisions. They will be able to provide you with tailored advice based on your individual circumstances, which can help make sure that buying a house in the UK is financially viable for you. 

Finally

As we navigate life during ever-shifting times, it can be hard to determine the best course of action. But with patience and a little time in our corner, one day we’ll have an invaluable gift: hindsight that will provide clarity on what was “right” all along.

Remember, inflation and mortgage rates can change quickly, so make sure you stay informed and get the best advice available – house buying shouldn’t be an impulse decision. Good luck!