Mortgage rates are rising: It could be time to act

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April 27, 2022 - Furnley House

Mortgage rates are rising: It could be time to act

If you have a fixed rate mortgage which is coming to an end, or if you have rolled on to your lender’s standard variable interest rate, it might be worth considering securing a new mortgage arrangement now.

In recent weeks banks and building societies have been withdrawing their cheapest mortgage deals and replacing them with products with higher interest rates. Many mortgage deals are being released and quickly withdrawn, making it a fast moving market for borrowers to navigate.

The borrowing market is moving because rising inflation continues to be a real concern. The Bank of England has increased interest rates three times in recent months, from their pandemic low of 0.1 per cent to 0.75 per cent. Yet, inflation continues to run at a 30-year high of 7 per cent and it could reach 8 per cent – a level the UK has not experienced since the early 1980s.

Raising interest rates is one way that the Bank of England can control the rapid rise in the cost of living. However, the Bank of England Governor Andrew Bailey has said that he was walking a tight line between tackling inflation and avoiding recession. This means that if they were to increase interest rates too quickly, there is a risk that it would put the country’s economic recovery from the pandemic into reverse.

This means interests are likely to go up, in a controlled way, but lenders are pricing in this expected rise in costs into their products now.

In addition to the cost of borrowing increasing, the financial strain many households are facing with inflation is a growing concern to mortgage underwriters. Lenders have reacted by tightening their affordability tests, to ensure loan applicants are able to shoulder the increasing living costs and maintain future loan repayments. This means that some mortgage applicants cannot borrow as much as they would like, or may have been able to borrow before.


Interest rates are still relatively low, why secure my mortgage now?

The rate of interest paid on a loan is important, and the cheaper the rate the better. However, the type of loan can be an equal priority.

A fixed rate mortgage, where repayments stay the same and don’t rise or fall, can provide financial security during uncertain times. With a fixed rate mortgage, even if the Bank of England suddenly increases interest rates, the monthly repayments stay fixed. When prices for basic items such as food and fuel are rising, a fixed mortgage repayment can provide welcome financial stability.

For those who would find it difficult to manage mortgage repayments that could change from one month to the next, securing a fixed rate mortgage now when prices are only starting to rise should be considered.


How to find a new mortgage?

A mortgage adviser can help you to arrange a new loan. They will discuss the different types of mortgages available, and help you find the most suitable rate for you as well as ensure your application is best prepared for the lender. They will also be able to discuss with the mortgage underwriter any queries that arise from the application.


Our team of mortgage advisers at Furnley House can help. Call 0116 269 6311 or email