What has caused Mortgage Rates to rise?

Mortgages have been in the news a lot recently. Everyone is talking about interest rates rising and the effect this is having on mortgage deals. Understandably, if your current mortgage product is coming to an end or you’re trying to get a mortgage for a new property, this news can be worrying. You may be concerned about how the current economic situation is going to impact your next mortgage application. 

It can be difficult to get your head around mortgages at the best of times and the current financial climate has only made the mortgage market more complex. To assist anyone who is about to remortgage or buy a new home, we have attempted to answer some of the questions we are frequently being asked about rising mortgage rates. 

Why have mortgage rates increased recently?

The rate of inflation is currently 10.1% and this is a huge concern for the Government. Simply put, inflation is the term that is used to describe the rising prices of goods and services. The rate of inflation fluctuates over time. Having a low and stable rate of inflation is preferable as this helps to create a good economy, the Government currently has an inflation target of 2%. 

Inflation is impacted by a range of worldwide factors and several different things have contributed to the historically high 10.1% current rate. One big influencing factor is Russia’s invasion of Ukraine and the impact the war is having on the price of gas. Unfortunately, not only are higher energy prices causing inflation to rise, but they are causing businesses to charge more for their goods and services, which also has a knock-on effect on inflation. 

The Bank of England is responsible for getting inflation back within to the Government’s 2% target and to do this, they increase the base interest rate. This will put less money in everyone’s pocket as borrowing money becomes more expensive. The effect is less spending and more saving, which in turn drives down the cost of goods and services thus reducing inflation. 

The Bank of England’s Monetary Policy Committee sets the base rate and they regularly review the economy to see whether interest rates need to be changed. The Bank of England's base rate is currently 2.25% and the next interest rate decision will be made on Thursday 3rd November 2022. This is the most important interest rate in the UK as it influences all other rates and anyone borrowing money will notice the difference when the base rate rises. 

What does this increase mean for homeowners?

Every time the Bank of England's base rate rises, mortgage lenders will increase their interest rates and this will have an impact on homeowners’ mortgage repayments. Thankfully, if you are on a fixed-rate mortgage, then the interest you pay won’t change and it will be kept at the same amount until the end of your fixed rate period. However, if you are on a Standard Variable Rate (SVR) mortgage or a Tracker Mortgage, you will be directly impacted by rising interest rates. 

The interest rate on your mortgage depends on the percentage of the amount you borrow. If you are currently comparing the latest mortgage rates you will likely have noticed that the products offered are much higher than a year or two ago. Higher interest rates are making it more difficult to find competitive mortgage rates and almost everyone’s mortgage repayments will be going up when they finish their competitive fixed rate period. 

Will this increase affect new buyers?

Not only are rising mortgage rates impacting homeowners who need to remortgage, but they are also affecting people who are buying a home. Getting a mortgage as a first-time buyer has become more difficult and mortgage lenders are not being as generous with the amount of money they’re willing to lend due to the current economic climate. That said, in almost all cases buying a property is cheaper than the cost of renting. Many mortgage providers have reduced the amount of products on offer since the announcement of the Government’s mini-budget at the end of September, which means less choice for buyers. 

Speaking to a whole of market mortgage advisor 

Hopefully, the information in this article has been insightful if you are concerned about current mortgage rates and you will now know what has caused interest rates to rise so much in the last few months alone. If you are trying to get a new mortgage and you need some assistance, don’t hesitate to contact us at Mortgage Required. We are whole of market mortgage advisors and we will search the mortgage market to find the best mortgage deals for you. 

The independent mortgage advice we provide can help you to ensure you are making the right decisions regarding your next mortgage and we pride ourselves on making the mortgage process less stressful for our customers. 

Your home may be repossessed if you do not keep up repayments on your mortgage.

There will be no fee for Mortgage Advice. There may be a fee for arranging a mortgage. The precise amount will depend upon your circumstances, but we estimate it to be £399.

Mortgage Required Ltd, Finance House, 5 Bath Road, Maidenhead, SL6 4AQ is authorised and regulated by the Financial Conduct Authority reference 573718 at www.fca.org.uk.

The Financial Ombudsman Service is an agency for arbitrating on unresolved complaints between regulated firms and their clients. More detail can be found on their website: www.financial-ombudsman.org.uk