Britain's mortgage crisis: What it means for you
19 June 2023, 12:37 | Updated: 19 June 2023, 12:56
Homeowners face more agony as the average two-year fixed mortgage rate hit 6 per cent today and to make matters worse, the Prime Minister has made it clear that homeowners are on their own as there will be no help from Government.
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What’s happened?
Rates have been rising since recent data revealed UK inflation - the measure of rising prices - is not reducing as rapidly as expected. In a bid to tackle this, the Bank of England has raised interest rates twelve times in a row since December 2021, but so far this has not had the desired effect.
With inflation not falling as fast as anticipated, it is now widely believed the Bank of England will raise interest rates again this week and one of the knock-on effects of this is a hike in mortgage rates increase.
As interest rates continue to rise, homeowners will see hundreds of pounds added on to their mortgage repayments.
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How does increasing interest rates lower inflation?
By putting up interest rates, borrowing becomes more expensive. The theory is to counter this people will spend less, which should lower inflation.
I’m on a fixed-term mortgage – what should I do?
Whilst you are still in a fixed deal you will not be affected, as you will be locked into your current interest rate. However, all will change at the end of the term and it is thought that circa 1.5 million households will fall into this trap by the end of the year. If you’re in this position, you will inevitably face a sharp rise in your monthly repayments so will need to consider carefully what to do next.
Unfortunately predicting the mortgage market is nigh on impossible in the current climate, as no one knows if rates will continue to rise or not. Your decision will be to either enter into a new fixed-term mortgage or move to a variable mortgage – where your payments will fluctuate with interest rates.
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Should I go fixed or variable?
There is no generic answer to this question as it really depends on your specific circumstances.
If you are currently in a fixed deal your lender may allow you to secure a new deal three to six months in advance of your current deal expiring. If your lender allows for this ask if you will be able to cancel the future deal you agree to if rates come down before it commences. If the answer is ‘yes’ this would surely be your best next course of action.
Ultimately, whether you are currently on a fixed or variable deal, you need to look at the market and compare rates that are available.
If you would like peace of mind with your monthly repayments a longer-term fixed deal may be the most attractive choice for you, but this is a lottery that may or may not pay-off.
My advice is speak to a mortgage broker who will be able to present the options available that best suit your needs and individual circumstances.
Why won’t Government help?
Speaking on ITV’s Good Morning Britain today, the Prime Minister said: “I know the anxiety people will have about the mortgage rates, that is why the first priority I set out at the beginning of the year was to halve inflation because that is the best and most important way that we can keep costs and interest rates down for people.
“We’ve got a clear plan to do that, it is delivering, we need to stick to the plan.
“But there is also support available for people. We have the mortgage guarantee scheme for first-time buyers and we have the support for mortgage interest scheme which is there to help people as well.”
