Impact of Higher Mortgage Rates

Published / Last Updated on 04/08/2022

The Bank of England Monetary Policy Committee announced today that base rates will increase by 0.50% to 1.75% pa on 4 August 2022.

This is not to be ignored given the Bank of England has suggested that a recession is coming and that base rates could be as high as 3% by autumn 2023.  That’s just over 12 months away.

Mortgage repayments

This will impact on your mortgage repayment costs.

If you are on a variable rate already, your monthly mortgage payments will increase shortly.

If you are on a fixed rate, then you will be protected from rate increases for now, but you need to plan for much higher fixed rate deals when you come to the end of your mortgage deal or plan to remortgage.  We expect normal fixed rate mortgage deals of 3% pa to increase by 3% to around 6% pa over the coming 2 years.

The following figures represent monthly repayments on a 25-year deal for both repayment and interest only mortgages at 3% pa but also if they increase to say 6% pa.  This is not ‘pie in the sky’ stuff, anyone who had a mortgage in the late 1980s, 1990s or 2000s will tell you that the normal is not a 3 or 4% mortgage it is a 6%, 7%, 8% or even a 12% rate.

Mortgage O/S

£100,000

£200,000

£300,000

3% Repayment

£474.21

£948.42

£1,422.63

3% Interest Only

£250.00

£500.00

£750.00

6% Repayment

£644.30

£1,288.60

£1,932.90

6% Interest Only

£500.00

£1,000.00

£1,500.00

Monthly mortgage payments based upon 25-year mortgage deal.

You need to plan for the worst, revisit your budget, look at your monthly income and expenditure and make economies.  We know this is difficult during the current ‘cost of living’ rises but try and save, try and make over payments, live on a budget as if your mortgage rate had doubled.

Renting?

You will unlikely be shielded from rate rises as many landlords have buy to let mortgages and if their mortgage costs double, they will likely increase your monthly rental cost.  People that are renting need to also plan for increased housing costs.

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