Digital home-buying service Habito comments on the Bank of England interest rate rise impact on mortgages
Martijn van der Heijden, CFO at award-winning mortgage broker, lender and digital home-buying service Habito, comments on the Bank of England interest rate rise impact on mortgages.
On the statement and the future:
“The MPC said that December’s rise could be the first hike of several, so today’s decision comes as no surprise. But, as expected as the rate rise may have been by financial markets, it’s bound to be a shock for homeowners who aren’t used to back to back rises, which hasn’t happened since 2004.
“The bad news is that some city forecasters are expecting further back to back rate increases this year. And, to give an indication of where rates could get to, Steffan Ball, the chief UK economist at Goldman Sachs, said earlier this week that the MPC could lift the base rate to as high as 1.25% by November. Anyone who’s bought a home in the last 13 years has only ever had a mortgage during a time when base rates were 1% or below – so that’s a long time to get comfortable in paying historic low interest rates, to then have those rates jump – potentially to their highest level in over a decade – in just 10 months’ time.
What homeowners worried about rising inflation and rising interest rates can do:
“At Habito, we are continuing to see the popularity of people remortgaging to 5-year deals (over 2-year deals) and longer-term fixes. This week Lloyd’s launched a new 10-year fixed-rate deal at just 1.66% interest, and of course our own Habito One mortgage is fixed for life. While not right for everyone, longer-term fixes can offer rate certainty for a decade or more, which can be reassuring in an unpredictable world.
“Longer-term fixes are typically more expensive than shorter-fixes, because you’re protecting yourself from uncertainty and further interest rises for potentially decades to come. But, they are a good option for people who are mindful of the threat of rates rising multiple times and thinking “I don’t want to have to worry about this every time I have to remortgage”.
“Fixing for longer is a good hedge against inflation. And, the fact that Habito One has no exit fees or early repayment charges, is an important feature for any homeowners who believe that this economic squeeze could be temporary. The Habito One product gives them the comfort that their mortgage repayments are protected, should base-rates rates continue to rise, if a Russian invasion of Ukraine does lead to trouble on the stock market, if inflation continues to gather pace, but at the same time, know that they can move mortgage deal at any time, with no financial penalty.”
The impact of inflation on mortgages:
“For some people, the impact of inflation will take a big toll on their monthly outgoings. We’ve already had enquiries from some customers wanting to remortgage to change their term from 20-years remaining to 30-years remaining, to reduce their monthly repayment amount. When the NI tax rise comes in from April, alongside frozen income tax thresholds and frozen student loan repayment thresholds, we could see more customers looking to extend their mortgage terms, to make their monthly repayments lower.
“But this will have implications for the total interest repaid on a mortgage. If you spread out the repayments over more years by lengthening your total term, it allows more interest to accrue, so while it helps lower monthly repayment costs in the short-term, it’s more expensive in the long run.
“For homeowners with deals expiring in the next six months, it’s the ideal time to look at whether fixing their mortgage costs and protecting themselves against further household bill volatility, is the right course of action. Some lenders won’t let you switch before three months, but there are lenders out there which allow you to lock in a deal six months early.
“For anyone with deals expiring mid-2022 and beyond, there could be an expensive watch out; Early Repayment Charges (ERCs). These are set by your lender and can be thousands of pounds. However, homeowners could now start to weigh-up whether paying an exit fee, to remortgage early and lock in a lower rate now, is financially worth it. If you’re unsure, a mortgage broker will be able to help show you what a new deal would look like.”
Kindly shared by Habito
Main photo courtesy of Pixabay
