Mortgages  

What impact would a rate rise have on mortgages?

What impact would a rate rise have on mortgages?
 Credit: AP Photo/Alberto Pezzali

Having sat at a record low of 0.1 per cent since March 2020, all eyes are on whether the base rate will finally increase by the end of the year.

The current inflation rate of 3.1 per cent, while down by 10 basis points from August, remains above the inflation target of 2 per cent.

Savers, who are contending with inflation alongside low interest rates, are more likely to welcome any rise in the base rate compared to borrowers.

Simon Gammon, managing partner of mortgage broker Knight Frank Finance, says a rise in the base rate this year is very likely. He predicts a modest increase of up to 25 basis points, saying that the rate “needs to rise” from its 19-month record low.

“We do expect interest rates to rise. Whether it’s this side of Christmas or just after, time will tell, but it’s imminent.

“Therefore my advice to anyone who is looking to borrow or needs to review their mortgage product in the next six to nine months is do it now, because you could end up locking in a product that you won’t have access to at Christmas time or in spring. 

“Now is the time to move, because we are inevitably seeing interest rates and mortgage products going to increase in their rate – I think over the next six months. Every indicator points to that.”

Chris Sykes, an associate director and mortgage consultant at Private Finance, is already seeing mortgage rates rise, citing changes by major lenders Halifax, HSBC, Nationwide and NatWest.

But he also notes that while rates at lower LTVs are rising, rates at higher ratios from 80 per cent upwards are still reducing, albeit from high levels during the pandemic.

Sykes likewise says that borrowers who require a remortgage should consider doing so now. He adds that for borrowers who are, for example, four years into a five-year deal, it may be worth looking at the cost of remortgaging even if this would incur early repayment charges, as savings could still be had.

Nick Mendes, a mortgage technical manager at broker John Charcol, agrees. “Taking into account the early repayment charge, if it’s 1 per cent and you’ve got less than a year left, by paying the early repayment charge you may find it beneficial to do that and go onto a new deal for another five years as an example, while the rates are where they are.”

Although Sarah Coles, a personal finance analyst at Hargreaves Lansdown, says rate rises will eventually feed into higher mortgage payments over the coming years, she notes: “As yet, rate rises are being predicted at relatively modest levels, and from a historically low base, so there will still be affordable deals available.”

Economists’ view