Interest rates are rising in a bid to curb inflation, which has placed many households under significant financial pressure as they struggle to cover soaring living costs.
Consumer price inflation stood at 7.9% in the 12 months to June, which is still considerably higher than the government’s 2% target. Raising rates means borrowing becomes more expensive, which dampens consumer spending, in theory leading to lower prices for goods and services.
Whilst inflation is still higher than the Government’s target, the latest figures were lower than expected. As a result the last couple of weeks have seen more positive improvements, with more stability in the market allowing some lenders to cut fixed rates.
How will another increase affect you?If you’re currently locked into a fixed rate mortgage, then your payments won’t change following Thursday’s base rate rise. However, any relief is likely to be temporary as you’ll need to be prepared for much steeper rates when you come to remortgage.
If you’re approaching the end of your fixed rate deal, you therefore may want to consider acting sooner rather than later when it comes to securing your next mortgage deal, especially if you think rates are likely to continue to rise. You can usually secure your next mortgage up to six months before your existing deal finishes, and if rates stabilise or fall in the meantime, you’ll be able to review your options again before your new deal begins.
Those on variable rate mortgages are likely to feel the impact of another rate increase relatively quickly if their lenders decide to pass on the rise in full. People with tracker rate deals will see their payments increase from next month in line with the quarter point increase.
Many expect that there could be more rate rises to come yet so those increases could continue in the near term, although many forecast that as the rate of inflation does fall, it’s possible that interest rates will start to come down. There’s no guarantee though as to when or if that happens so borrowers need to think about what will work best for them.
If you’re not sure which mortgage to choose, seek professional advice from a broker on the deals that might be available to you. They’ll be able to tell you which mortgages you’re likely to be eligible for and can provide you with support throughout the application process.