Rising inflation – How does this affect mortgages?

With the rise in inflation across all sectors of the economy due to the pandemic, it was expected that The Bank of England (BoE) were to raise interest rates recently, but it was a welcoming surprise for many that they kept the rate at 0.1 percent for November. Although this decision has pleased many, the focus is on the Monetary Policy Committee due to take place on 16^th December, which foresees predictions that the base rate will increase to 0.25 percent, in line with the soaring inflation.

Although the rate was held, many banks and building societies have raised their interest rates across their fixed-rate home loans. The increases within companies such as HSBC, NatWest and Nationwide are now in effect. For those on a fixed rate mortgage, new rates do not apply until the end of the fixed period. For those with variable rate mortgages, changes tend to have an immediate effect on your monthly mortgage payments. With the added rise in other living costs, many households are becoming anxious about what is ahead.

One way the UK Government are hoping to help relieve households of extra mortgage costs are through lengthening the traditional fixed-rate mortgage. The most recent lender to do so is Kensington Mortgages who has just launched their fixed-rate mortgages of up to 40 years, which will be the first product of its kind in the UK market. Rates will be dependent on the fixed term chosen and the amount borrowed. With parts of Europe already enforcing fixed-for-term mortgages and the evidence proving that it is becoming very popular, this may be positive news that UK homeowners need.

Many industry professionals are also starting to analyse how the rise in inflation will affect the housing market as whole. Richard Donnell, head of research at Zoopla, believes that one of the factors that has attracted buyers to either get on to the property ladder or to move, was the ultra-low rates that banks and building societies were able to offer. Many are predicting that the market will now start to slow and the rate of growth for house prices will decrease and eventually flatten.

With experts predicting that the rate will rise above 1% by the end of 2022, which will be the biggest escalation since 2006, it is evident that this will have a knock-on effect to UK Households in a variety of ways such a mortgages, borrowing, pensions and savings. Having a financial plan in place to deal with any potential interest rate changes as best as possible, is the main guidance from advisors currently. Other tips include: finding out what mortgage you have and how the interest rate changes will affect you, work out what you can afford and build up your credit score.

If you need to sell your home quickly, UK Homebuyers Ltd can give you an offer, no matter what the condition or location. Our customer service line is open 24/7, just call 0333 255 0575 for a quick offer or fill in our online form to obtain your free no obligation cash offer.