Mortgage rates have been increasing steadily since disappointing inflation figures last month, leaving homeowners seeking advice on what steps they should take.
The Bank of England is expected to respond to the stubbornly high inflation rate by raising its base rate higher than previously thought.
Lenders have reacted by increasing their borrowing costs.
The typical interest on a two-year deal rose to 5.98% on Friday, a level not seen since the disastrous mini-budget during Liz Truss’s premiership in October.
It means homeowners whose deals are coming up for renewal will see sharp increases in their monthly payments.
Bank of England set to rise rates further
The Bank of England will hold its next rate setting meeting on Thursday this week.
It has increased its base rate at 12 consecutive meetings, taking it from 0.1% to 4.5%.
The question is not if it will raise its base rate but by how much. It may be another 0.25% jump, as it was in May, or by a higher amount this time.
Some analysts are now predicting the rate could rise to 5.75% by the end of this year.
Dundee-based mortgage broker Kessar Salimi summarises: “The Bank of England is expected to increase the base rate much higher than its current 4.5%.
“This has worried the money markets and therefore the cost of borrowing has been increasing.”
Mortgage rate advice
For the past fortnight, lenders have been pulling deals and increasing their rates.
It has prompted Darren Polson, head of mortgage operations at Aberdeen Considine, to call for the UK Government, Bank of England and lenders to work closely to bring some stability.
He said: “There’s no doubt it’s tough out there for those looking for their first mortgage or anyone approaching the end of their current fixed rate deal.
“Whether you’re a first-time buyer or looking for a new deal it’s more important than ever to seek advice from an independent mortgage broker who can ensure you’re aware of all the options.”
This sentiment was echoed by Karen Crombie, a Banchory-based mortgage consultant with Raeburn Christie Clark & Wallace.
She said: “I would recommend that everyone visits an independent mortgage broker who will look at the whole marketplace and get them the best deal out there.
“Everyone’s circumstances are different and there are multiple moving parts when trying to decide what might be best.”
Will mortgage costs fall again?
The market is currently anticipating the Bank of England rate will fall when inflation gets under control.
This mean five-year products have lower rates than two-year deals, with an average interest rate of 5.62%.
Homeowners whose fixed terms expire this year will be hit hard as many are currently on deals of around 2-3%.
The higher mortgage rates are also impacting on the number of buyers and prices in the market.
Mr Salimi said it was an opportunity for buyers to negotiate harder on price.
He said: “We have seen a drop in new buyers.
“Some are worried about rates and if now is a good time to buy. Others can no longer get the loan amount required due to higher mortgage stress tests.
“However, I think prices will remain stable due to a shortage of properties for sale.
“As a buyer it’s an opportunity to get in the market with less competition.
“Although the rates are higher you may not need to pay as much over home report to secure a property.
“For remortgaging it’s worth looking at the current rates and potentially secure a product whilst also monitoring it to see if rates drop before your current product expires.”
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