Scottish homeowners and first-time buyers could soon be facing higher mortgage costs as the Bank of England prepares to make a crucial decision on interest rates this week. Currently maintained at 3.75%, the base rate of interest is expected to increase to 4% to tackle rising inflation across the UK. This will be the first time the Bank of England has raised the base rate of interest in three years.
Director and Head of Conveyancing at Watermans, Shawn Wood, has some expert advice to offer on how to best navigate this potential increase.
What do higher interest rates mean for the property market?
“The impending rise in rates could result in a slightly more cautious property market. Some buyers may decide to delay their purchase, whilst others will reduce their budgets or negotiate more carefully. In turn, sellers may take a more measured approach to pricing as buyers continue to be conscious of current affordability.”
“However, we are not expecting an interest rate increase to bring the property market to a standstill. Far from it. People will always need to move for a variety of reasons, whether that is upsizing, downsizing, relocating or purchasing their first home. The property market will continue to operate, although we may see buyers becoming more selective and taking longer to make decisions.”
What effect could an increase in interest rates have on mortgages?
“An increase in the Bank of England base rate could have a significant effect on the affordability of property and monthly mortgage repayments. However, it’s important to understand that an increase doesn’t automatically mean that every mortgage product will become more expensive. The impact will depend on what type of mortgage product you currently have.”
What will happen to variable or tracker mortgage holders?
“For homeowners on tracker mortgages, the effects may be felt pretty quickly. Tracker mortgages typically follow the Bank of England base rate, meaning an increase of 0.25% would result in a corresponding rise in your mortgage interest rate. Standard variable rates may also increase, depending on the lender, as they may choose to pass this increase on to you.”
Will my mortgage repayments change if I am on a fixed rate?
“Homeowners currently protected by fixed-rate mortgage agreements should not see their monthly payments change simply because an increase has been announced. That protection lasts until your existing deal expires, at which point you will need to consider the mortgage rates available at the time.”
“For homeowners approaching the end of a fixed-rate mortgage, they could be facing some difficult decisions as it’s likely they will exit a lower interest rate and into a higher rate with their new deal. Our key advice is start reviewing your options as soon as possible.”
“We recommend looking for better deals around six months before the end of your current fixed-rate deal, as some lenders allow customers to secure a new deal in advance. Speak to an independent mortgage advisor, who will talk you through the different mortgage products available from different lenders, rather than just renewing with your existing provider. We work with a few trusted brokers and would be happy to put you in touch with them.”
I need to remortgage now: What would an increase mean for me?
“If you are approaching the end of a current fixed-rate mortgage deal, an increase in interest rates could mean facing higher monthly repayments when it comes time to remortgage. If you secured your mortgage several years ago, when borrowing costs were considerably lower, you may see a noticeable increase in your monthly outgoings as you move onto a new deal.”
“With lenders already factoring expectations of future Bank of England rate rises into their mortgage pricing, borrowers may find that the most competitive fixed-rate deals become more expensive even before an official announcement is made.”