What Does The Rise In Interest Rates Mean For Mortgages?

The Bank of England has recently raised interest rates to 3%, which is the highest level since the onset of the 2008 financial crisis, and the biggest single hike (of 0.75%) for more than 30 years. The move was widely expected, to help tackle soaring levels of inflation, which currently stand at 11.1%, the highest level for 41 years.

The interest rates are closely linked to mortgage rates, so anyone looking to get on the property ladder, or whose current mortgage deal is coming to an end, will be keen to know how the news will affect them. 

While the rise will ultimately mean that monthly repayments will increase for homeowners, many mortgage lenders have already factored the interest rate rise into their deals, so there should be no great shocks, according to Yahoo News

However, lenders are currently tightening up their affordability criteria, so first-time buyers will find it more of a challenge to get a mortgage deal, especially if they were already on a tight budget with little wriggle room. However, with the advice of an experienced mortgage broker to help them see what their options are, obtaining a good deal may still be possible.

Furthermore, the Royal Institution of Chartered Surveyors (RICS) reports that house prices are stalling and expected to fall during the next year, possibly by as much as 10%. With more affordable property prices and a less competitive market, this may open up more opportunities to first time buyers.

Simon Rubinsohn, RICS’ chief economist, said: “The latest feedback to the RICS survey provides further evidence of buyer caution in the face of the sharp rise in mortgage costs. As a result, the volume of activity is likely to slip back over the coming months and realistic pricing is now much more important to complete a sale.”

He added: “The settling down in financial markets could provide some relief although it may be premature to assume this will be reflected in a reduction in lending rates any time soon. However, the employment picture remains critical to the medium-term outlook and for the time being, that remains solid.”

“As far as the lettings market is concerned, the imbalance between demand and supply still appears unusually extended, leading to rent expectations in the survey remaining at elevated levels and it is difficult to see this changing any time soon in the current environment.”

The Bank of England expects that inflation is nearing its peak, and will start to come down next year. This means that any future interest rate rises are unlikely to be as steep as the latest one, and this will have a softening effect on mortgage rates.

However, with the prospect of a lengthy recession lying ahead, it seems likely that both home buyers and sellers will act with caution when making any decision about when it is right time to make a move. 


If you are looking for a mortgage broker in Bounds Green, please get in touch today.

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