Interest rate rises and mortgages

"While I hope that the Bank of England hold its nerve on interest rates, at least until the 2022 numbers start to come in, it is not a huge issue for personal borrowers. The vast majority of people with mortgages have taken them out on a fixed rate basis. So if there was an increase in interest rates, most households would be insulated from the rise, unless they happened to be reviewing their mortgage in the very near future, or had any part of their borrowing on a variable rate mortgage (such as a discounted, or tracker rate). Commercial loans and mortgages however are more likely to be on a variable rate, so any increase in the base rate will most likely be passed on to them straightaway."

"Some of the lowest ever mortgage rates have gone up over the past few days but there is still a range of sub-1% fixed rates to choose from. Even if the Bank of England raises the cost of borrowing, we will still be in an ultra-low borrowing environment. If you are in the process of taking a mortgage or you are thinking about remortgaging it is a good time to secure a new deal. This month (October) has been the biggest month for remortgage maturities of 2021, with £38.9bn of fixed and tracker rates expiring. If you delay choosing a new deal there is a good chance you will end up paying more money."

"It seems likely that rates will increase, and we have seen a few lenders slightly increase their mortgage rates in the last week. If rates increase it would have an impact for all mortgage holders. Those with a larger mortgages would be affected more as a small percentage increase makes a big difference at the higher level, especially when you have a loan above £1m."

Rates are likely to rise in the near future but the impact of a rate rise will only impact certain people. Those that are in a fixed rate period at the moment will be unaffected by rate rises until that fixed period ends and those that are within 6 months of their deal ending can lock in a new rate now for when they switch over, so in theory a rate rise should only start having an impact on existing borrowers from 6 months time onwards. Whilst a rate rise has obvious consequences of higher interest payments many borrowers will be in a lower loan to value bracket when they remortgage so will have access to better products than when they took their current deal. Secondly, there is sometimes the option to increase the term of the mortgage to reduce the payments if they become unaffordable but this should only be done if necessary as it will mean paying more interest in the long run.

There is a lot of speculation regarding a potential rise in interest rates and the impact this will have for mortgage holders. Some believe that raising rates now would be the wrong thing to do - inflationary pressures relate to the choked up supply chain and are therefore likely to drop away once the supply issues are resolved. Others believe that the spectre of inflation is too great to ignore and the Bank of England should act now. In any event this creates uncertainly. For many current mortgage holders who have recently locked themselves into a fixed rate there isn't anything to worry about for now. Indeed those who have locked themselves into a sub 1% rate may even be smugly thinking how good they have been. But for others who may be on a lenders variable rate, be it a tracker or SVR they may be worried about the impact of a rate rise on their finances. especially with other prices also rising. And for those coming to the end of a fixed rate now is probably the time to fix their new rate rather than to wait too long.