Habito comments on the likelihood of Bank of England raising interest rates
Award-winning mortgage broker, lender, and digital home-buying service Habito comments on the likelihood of Bank of England raising interest rates tomorrow (Thursday).
The Bank of England is meeting tomorrow to decide on whether the base rate should rise for the fifth time in a row, with predictions that it will hit the highest rate in 13 years – 1.25%
Martijn van der Heijden said:
“The Bank of England is meeting to decide whether to hike rates for a fifth time, following the shock fall to the UK’s economy in April and predictions that inflation could hit 10% this year.
“But – with higher rates, comes higher borrowing costs – for people, businesses and the government. The Bank of England doesn’t want to risk stalling the UK’s fragile economic recovery post-covid. So, deciding to raise interest rates (and by how much) is a fine balancing act.”
The impact of inflation on mortgages:
“Right now, inflation is at 9% – a 40-year high – which is already taking a huge toll on many UK homeowner’s monthly outgoings.
“We’ve had enquiries from customers wanting to remortgage to change their term from 20-years remaining to 30-years remaining.
“This is to reduce their monthly repayment amounts to give more financial breathing room as they navigate the rising cost of living. But, lengthening your term has implications on your interest; if you spread out the repayments over more years more interest accrues.
“So, while it helps lower monthly repayment costs in the short term, it’s more expensive in the long run.”
What can homeowners do?:
“The vast majority of homeowners in the UK are on a fixed rate mortgage, so won’t see any change to their monthly repayments, for now. However, mortgage rates are going up, so when you do come to remortgage, it’s more likely that prices will be higher than where they are now.
“For the quarter of UK homeowners who are on a variable, tracker, or standard variable rate, any vote to raise the base rate will see their repayments go up; on tracker mortgages the change will be immediate, but on a variable rate, it’s up to the lender.”
Remortgaging:
“Homeowners with deals expiring in the next six months are rushing to fix their rates now.
“At Habito, we’re bracing ourselves for a busy week; the day of the rate rise in May, Habito’s remortgage web traffic was up 160 per cent, compared to average daily remortgage traffic.”
Rosie Fish, Mortgage expert at Habito, explained:
“Many lenders issue offers which last 6 months, so you can lock in a rate now, and take it in December. This includes Natwest, Nationwide, Barclays, but remember, that’s from the date of offer issue (after underwriting).
“There are a few exceptions, including Halifax and Santander, which can go up to 6 months, but have standardised offer validity lengths based on dates of mortgage deal issue, rather than mortgage offer date. Smaller or specialist building societies usually offer 3-6 months, so some will cut off after around 90 days – such as Dudley BS, Kent Reliance, Newcastle BS – but many will be open to extending their offer, based on your circumstances or for a fee.
“Right now, the cheapest deals on the market are being withdrawn and repriced by lenders at short notice. The high level of remortgaging activity also means that processing times for applications is going up.
“If you haven’t got a mortgage offer yet, but will be looking to get one in the coming months, make sure you get your documents in order. Things like your ID being up to date and your address being correct on your bank statements will help avoid delays when it’s time to submit your mortgage application.
“Remortgaging with the same lender can save some time, and often doesn’t come with fees, but you can’t be sure you’re getting the best interest rate on the market. Switching to a new lender often means the most competitive rates and often their deals comes with cashback or freebies – like free valuations.
“Either way, it’s worth speaking to a broker because often, they can get exclusive rates, even if you decide to stick with your current lender.”
Kindly shared by Habito
Main photo courtesy of Pixabay
