The Monetary Policy Committee (MPC)PC today voted to increase the Bank of England (BOE) Base Rate by a further 0.25% to 5.25%. This is now the 14th consecutive rise.
Despite many hoping that with UK inflation falling a little from 8.7% to 7.9% would lead to a further increase being avoided, most economists polled by Reuters last week suggested the rate would peak at 5.75% per cent later this year, but others have suggested a more dramatic rise is possible.
Is now a good time to buy?
House prices have fallen at their fastest annual pace for 14 years, new data from Nationwide shows, revealing prices have dropped by 3.8 per cent, the biggest decline since July 2009.
Andy McBride at Professional Contractor Mortgages has this to say “the old adage goes “it’s not about timing the market, but about time in the market,” and it’s something I always look to remind our clients. Very few people have ever predicted the markets correctly, so if you can find a competitive rate, negotiate a good offer price, then now could be the right time for many people. Bricks and mortar have historically performed very well so unless you plan to sell relatively quickly, short term fluctuations shouldn’t be the only thing that shapes your thinking”
It is also worth bearing in mind that house prices play when it comes to remortgaging. The rate you will be offered is dependent on your loan to value (LTV). The LTV is the percentage of your property value held as a mortgage. If prices drop, then you LTV is likely to increase and could lead to higher rates as the lender perceives you to be a higher risk. .
What does this mean for your mortgage payments?
Tracker mortgages follow changes in the BOE Base Rate immediately. Therefore someone with a £200,000 mortgage on a tracking rate will see an immediate increase to monthly payment of around £30.
Standard Variable Rate (SVR)
SVR mortgage rates do not always go up directly in line with the Base Rate, but usually do. The average SVR currently stands at 7.67% so a £200,000 mortgage will increase by around £32 per month.
Fixed Rate Mortgages
Fixed rate mortgages provide shelter from BOE rate changes which is great news, unless of course you are one of the UK’s circa 800,000 mortgage holders whose fixed rate expires in the next 6 months. Whilst your payment will not change until the fixed rate ends, you are likely be looking at a significant increase in monthly payment from the rate you are currently paying.
A 3% increase to the rate you had been paying on a £200,000 mortgage could mean an increased payment of around £321 per month.
New schemes/rates offered by Lenders are priced according to long term predictions of where rates will go. Analysts believe that the 0.25% increase will have little impact on the rates currently on offer as the rise was expected and has already been priced in, in most cases .
Andy McBride at Professional Contractor Mortgages said : “We have seen some lenders drop interest rates in recent weeks, but I do think lenders have already priced in a marginal rate rise of 0.25% so I wouldn’t be surprised if we see rates hold steady or drop very slightly in the coming weeks.”
Is there any good news?
The rate of the Consumer Prices Index (CPI) inflation dropped more than anticipated last month falling to 7.9% from 8.7% in May. Core inflation, which does not include energy and food prices only fell marginally from 7.1% to 6.9%. It is hoped that if inflation continues to be wrestled under control then future rate increases can be limited.
Last month saw 46 mortgage lenders representing over 90% of the mortgage market sign up to the government’s new Mortgage Charter. The charter states – in light of the current pressures on households, and following the commitments agreed to support mortgage borrowers in December. The Chancellor met with the UK’s largest mortgage lenders, UK Finance and the FCA on Friday (23 June). At this meeting, lenders agreed to new commitments to support borrowers to help them as we go through this difficult period. It is understandable that people will be worried right now, particularly if their current mortgage deal is due to end soon.
All lenders have agreed:
- Anyone worried about their mortgage repayments can contact their lender for help and guidance, without any impact on their credit file and we would encourage you to contact your lender who are there to help.
- Support for customers who are up-to-date with payments to switch to a new mortgage scheme at the end of their existing fixed rate deal without another affordability check.
- Lenders will provide well-timed information to help customers plan ahead should their current rate be due to end.
- Lenders will offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.
Matthew Long Senior Mortgage Consultant at Professional Contractor Mortgages had this to say “Mortgage holders with rates expiring in the next 12 months need to plan ahead. It is more important than ever to access all the options available to you, from what you current lenders has to offer, to competitive remortgage options. A number of clients are restructuring mortgages at the same time to extend the term or consider interest only where alternative repayment strategies are in place”
If you are looking at a new purchase or to remortgage at the end of your current deal, speak with one of the PCM team as soon as possible. The advice may be to hold tight, but 10 minutes of your time could help form a plan that could save you a lot of money and time in the future.
Call Professional Contractor Mortgages on 02394 212912 for specialist advice from our qualified mortgage brokers, or complete our online contact form here.