Rising Mortgage Rates – What Inflation and Rising Interest Rates Mean | Personal finance | Finance

Mortgage rates reflect the interest rate set by the Bank of England, which was recently increased in an effort to combat soaring inflation. At the start of the coronavirus pandemic, interest rates fell to 0.1% – the lowest rate on record in the UK. The rate remained at an all-time low until December 2021, when the central bank began the first gradual increase to 0.25%.

Interest rates currently sit at 0.75% – still relatively low – and are expected to rise further throughout the year, with an interest rate decision being taken approximately every six weeks.

The Bank of England is keen to prevent inflation from rising further, as forecasts could hit 8% later this year.

The Bank’s chief economist has warned that more interest rate hikes may be needed to rein in inflation, but what does that mean for your mortgage?

Are mortgage rates increasing?

Yes – mortgage rates will always increase if the bank’s base rate is increased. If you are on a variable rate mortgage, your rate will increase based on changes from the Bank of England.

Those with fixed offers will not be affected by the changes, but at the end of your fixed term, you will be subject to cost changes set by the base rate.

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Inflation makes your money essentially worth less than it was before – so coupled with the cost of living crisis, your mortgage will certainly feel like it’s taking more of your power away from you. purchase.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown: “The cost of living crisis is rapidly worsening, with nearly a quarter of people struggling to pay their household bills.

“Almost everyone is feeling the pinch, but low-income people are particularly affected, with prices rising fastest for life’s essentials such as food and heating bills.

“So far, the current situation has not translated into rent or mortgage delays – only around 3% of people have reported this, a figure that has remained largely stable.

“However, this could be because people are burning through their lockdown savings in a bid to meet their daily living expenses while others choose to borrow more to meet their needs.

“Mortgage payers have had a chance to fix their costs in recent months, but those who rent will feel very exposed to further increases in the months ahead.”

Is there a way to beat the increase?

Yes, but you need to act quickly before interest rates rise even further.

Switching to a fixed rate deal is the only way to beat any further increases in the base rate – using a mortgage comparison tool is the easiest way to do this.

However, beware of additional fees that may come with upgrading to a new offer.

Some mortgages will come with exit fees when you decide to switch, and new mortgage transactions may charge you arrangement and appraisal fees.


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