Over the last few weeks, there has been a lot of news coverage about the value of the pound, interest rates, inflation and mortgages.

Whether you’re buying your first home, moving up the property ladder or downsizing, you must understand what’s happening in the property market and why and how it could affect your mortgage.

Housing market predictions are changing week to week, and no one knows for sure what lies ahead. However, Rightmove has reported that thousands of people are requesting property viewings every day – the same level the portal has seen all month.

Interest rates

Before the mini-budget, rates were already increasing. The Bank of England sets the base rate, and this is the rate that lenders use to set their mortgage rates. At the start of the year, the base rate was 0.25%, today, it’s 2.25%.

The Government and the Bank of England set an inflation target of 2%, but the current rate is a record 9.9%. The Bank of England needs to ensure inflation is low and stable, and the way they do this is to put up rates. It is predicted that inflation will hit 11% this month and could stay above 10% until the new year before coming back down again. This is having an impact on all our pockets – food, fuel, energy, and luxuries are all on the rise.

What’s more, the average mortgage rates are increasing – if you are looking for a 90% LTV mortgage and take out a two-year fixed rate mortgage, your typical rate in January would have been 2%. At the end of August, this was an average of 3.9%. Today, the average rate on a two-year fixed-rate mortgage hit 6.16%, according to Moneyfacts. This is the highest for 14 years.

In addition, the pound’s value has seen record falls, which could drive up inflation further. This, in turn, will cause the Bank of England to raise interest rates faster and higher than previously forecasted.

Commentators believe the bank base rate could rise to 5.8% by next spring, affecting the underlying costs of fixed-rate mortgages. Some lenders have repriced deals, and others have removed some or all of their products whilst the picture becomes clearer. Many of these lenders are now reintroducing the deals back onto the market, albeit at higher rates.

Mortgages

If you are moving home, buying a property or coming to the end of your fixed-term deal, you’ll be impacted by the rise in interest rates. If you have a fixed-rate deal with a reasonable amount of time left, you won’t be affected.

If you do nothing when you come to the end of your mortgage deal, you will automatically move onto the lender’s Standard Variable Rate (SVR). This will undoubtedly be higher than your current rate as it will reflect the Bank of England’s base rate, which is much higher than mortgages were 2, 3 or 5 years ago – the typical fixed rate term. If you have a tracker mortgage, your repayments will go up as the interest rate is anchored against the base rate with a percentage on top. Therefore, with rates at 2.25%, you’ll be currently paying 3.25%.
Although many lenders have withdrawn their fixed-rate products, others have put them back on the market with a higher rate. It’s worth consulting with a mortgage broker if you consider changing from a tracker or variable rate to a fixed deal – as you may have to pay an early repayment charge to exit the deal.

If you are on a fixed-rate mortgage and it’s due to end within the next six months, you could look at a new deal with the same lender now, as you can often transfer in the last six months of your deal without a penalty. If you want to change lenders, you should start looking, as it can take a few months for your application to be processed.