Mortgage rate increases have surged to their highest level in 15 years, surpassing the previous peak observed after last year's mini-budget.
Presently, the average rate for such mortgages stands at 6.66%, a level not witnessed since the financial crisis in August 2008.
These unprecedented rate hikes will significantly impact individuals seeking mortgages forself buildor renovation projects.
At the moment, the Bank Rate rests at 5.25%, but it is widely anticipated that it will rise during the Bank of England's review on August 3rd. This impending rate increase has the potential to affect your project, and here we will explore the implications it may have.
Mortgage rate increases due to rising inflation
The Bank of England's (BoE) base rate influences mortgage rates so any rise could potentially prompt increases in what banks charge.
On 3 August 2023, the BoE raised their base rate by 0.25 percentage points to 5.25%, but this could rise further in the next few weeks due to inflation still being high. Inflation was 8.7% (not including housing costs) in May 2023 unchanged from April 2023, according toCPI data from the ONS.
Who is impacted by mortgage rate rises?
最近的基准利率上涨不会影响所有铁道部tgages and mortgage options.
For those with fixed-rate mortgages, the rate rise will not affect them until their current deal expires. At that point, they would transition to their lender's standard variable rate (SVR) rate unless they opt for a new mortgage deal.
However, homeowners with tracker mortgage deals or variable rates will experience an immediate impact on their monthly payments due to the rise in mortgage rates. This is because their rates are directly linked to the fluctuations in the base rate.
Additionally, the higher rates is likely to result in increased costs for individuals planning to purchase a new property or refinance their existing home in the upcoming months.
How will self build mortgages be affected?
Self build mortgagesdiffer from traditional mortgages as they serve as a short-term financing solution, typically lasting a couple of years to cover the duration of the construction process.
These mortgages are designed to support self builders by offering stage payments at crucial milestones throughout the building project, ensuring sufficient cash flow for the construction of their homes.
Since self build mortgages have shorter terms, they often come in the form of variable deals that align with the BoE base rate, rather than fixed-rate deals.
还,这些交易被视为银行冒险者的they are often charged at higher rates than standard mortgages.
Therefore, self builders could expect to pay even higher rates which could potentially create affordability challenges for some self builders.
How will renovators be affected?
Those who are looking at funding options forrenovating a housecould also find higher-than-expected interest payments.
Renovation mortgages, similar to conventional mortgages, will also be impacted if they are based on tracker or variable rates. In such cases, an increase in rates could result in higher monthly payments.
Although, those with fixed-rate renovation mortgages will not experience any changes until they need to remortgage.
Typically, arenovation mortgageis necessary when financing a property that requires significant repairs, conversion, or is considered uninhabitable. It allows borrowers to secure sufficient funds for the purpose of undertaking building work.
Will interest rates go down?
Inflation is expected to rise in the short-term, and by extension so are interest rates meaning borrowers are not expected to pay less anytime soon.
Although, the BoE predict that by the end of the year, inflation will go down due to energy prices falling, a fall in imported goods, and people spending less on goods which could help reduce inflation and the base rate.
However, Azad Zangana, Senior European Economist and Strategist writes in theShrodersthat he predicts the UK to hit a recession by Q1 of 2024. He also predicts the base rate to hit 6.5% by the end of 2023 as "the UK is suffering from a combination of European energy problems and US-style tightness in its labour markets exacerbated by Brexit."
Jeremy Hunt, the UK Chancellor has backed the rise in base rates with Prime Minister Rishi Sunak making the rising inflation rates a key priority for the government to tackle.
