What Do Interest Rate Rises Mean for Your Mortgage?
Guernsey is currently experiencing the highest rise in inflation since the Global Financial Crisis of 2008. In addition, The Bank of England base rate now stands at 0.5% (after the regulator introduced two rises in quick succession to try to curb inflation). Inhabitants of both the UK and the Channel Islands are likely to feel the effects of climbing prices, which could affect everything from grocery shopping to energy bills. Importantly, this will have ramifications for mortgages, as lenders tend to pass on the increase in interest rates to borrowers.
Increasing interest rates can help halt – or at least slow – inflation; but it does make borrowing more expensive. The good news is that the effects don’t tend to be felt immediately, so there is some time to plan; and, for those homeowners who are on a fixed-rate mortgage (or in a position to remortgage), it may be possible to avoid the impact entirely.
Interest Rate Rises: What Homeowners Need to Know
We have been experiencing an unprecedented period in the mortgage world, with cheap products widely available – and so, in some senses, we have been waiting for the bubble to ‘burst’. That time may have come (particularly for homeowners on a variable rate). However – and this is important – brokers have predicted that rises in mortgage rates more generally will be ‘slow and measured’.
Homeowners who are on base-rate tracker or standard variable rate deals are more likely to feel an immediate impact, however. Calculations by trade association UK Finance show that February’s base rate rise (from 0.25 to 0.5%) could lead to repayment increases of approximately £26 a month for those on a typical tracker deal. In addition, should the base rate increase further to 1.5% by the end of 2022 (which is possible), repayments would jump by over £120 per month.
This news – coupled with the spiralling costs of living and the fact that low-cost borrowing has become something of the ‘norm’ – is unlikely to be welcome. But there is help available. If you’re on a tracker or variable mortgage, our strong advice is to contact your lender or broker early to discuss your options.
Indeed, as Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said: ‘Lenders are sensitive to the rising number of people facing a squeezed household budget and the advice to anyone worried about their ability to pay their mortgage, particularly on top of energy and food price rises, is to get in touch with their lender early.’ Furthermore, if you’re in a position to remortgage, now would be a good time to speak to an expert broker like Cherry Godfrey. A fixed-rate mortgage would protect you from interest rate changes for a defined length of time – and we’re well placed to help you find the best deal available.
The future isn’t certain: but with the support of an experienced specialist, you can rest assured that your assets will be well-protected in a volatile market. As independent brokers, at Cherry Godfrey we have access to all the mainstream lenders, guaranteeing our customers the most competitive rates in the marketplace. We can also advise and guide you through the whole process, providing estimates for legal fees, monthly mortgage payments and life insurance premiums and liaising with lenders, lawyers and surveyors on your behalf. We can even help you with the paperwork!
We asked Luke Mapley, head of Mortgages and Life Insurance in Guernsey his take on the rising interest rates:
Although we have seen interest rates rise over the last 6 months and they may continue to rise over the next 12-24 months, we have also seen a lot of positive changes in the marketplace that give me plenty of reasons to remain optimistic. Mortgage providers are continuing to demonstrate a real willingness to lend and they continue to improve their mortgage criteria to make borrowing more accessible for Islanders. Increasing maximum salary multiples, removing barriers from mortgage policies and high levels of recruitment into their mortgage teams are just a few of the recent changes that mortgage providers have been making to drive more business and really demonstrate that they want to help Islanders get onto the property ladder.
In addition to the clear drive to lend to Islanders that we are seeing from mortgage providers, there has been far more stock available on the property market since the turn of the New Year which has lead to a significant increase in mortgage applications. We have successfully submitted plenty of recent applications from purchasers who have been on the lookout for their dream home for months, some even as far back as the January 2021 lockdown! For me this is a clear sign that, despite all of the “noise” surrounding rising interest rates, both lenders and borrowers both have a clear drive to do business which gives me great confidence as we move through 2022.