Despite the economy briefly rebounding in 2021, the Russian invasion of Ukraine has seen an unprecedented increase in the prices of food, fuel and other commodities, resulting in the cost of living sitting at a record high.
What is the financial forecast?
The Bank of England (BoE) predicts inflation will hit a sky-high rate of 11% 1 by autumn; well above the 2% target rate. Alongside the rise in inflation, it is forecast that the BoE will continue to raise the interest base rate by 0.25% in August and September, with a possible increase to over 3.3% by the end of 2023.2 This means mortgage repayments will surge in accordance with high inflation and rising interest rates.
In response to these factors the BoE has reduced its predicted gross domestic product rate for 2022 from 5% to 3.75% and has forecast the UK economy will shrink in 2023 by 0.25%. 3
While no one has ‘set in stone’ forecasts or a financial crystal ball, it does look as though many people could be in for a bumpy ride in the oncoming months and perhaps the next few years.
What could this mean for your mortgage repayments?
In June 2021 the Bank of England base rate was 0.1%4 and the average standard variable rate (SVR) was 4.41%5. Taking into account that standard variable rates can sit at between 2%-5% above the base rate6, a monthly mortgage repayment would be £1,239 for a £250,000 property where a 10% deposit of £25,000 has been paid (the loan amount would be £225,000)7.
If the Bank of England base rate rises to over 5% by the end of 2022 (for example, reaching 5.2%)8 as many have predicted, the approximate average standard variable rate could be 9.2%. This takes into account a rise in standard variable rates above the base rate of the amount of 4% (4.31% to be exact), as shown in June 2021. Monthly mortgage payments on an SVR would then be £1,919 per month; an increase of £680 per month.9
If you are nearing the end of your fixed rate term, the rise in interest rates will have an impact on your mortgage repayments as your mortgage will now cross over to your lender’s standard variable rate.
What can you do to mitigate the risks?
The ‘million dollar’ question is: How do you review your current mortgage terms to adapt to rising interest rates and is this possible?
That’s where we can look at your options and discuss them with you.
While the outlook seems bleak, there could be opportunities available to you if you don’t want to freefall into financial difficulties.
Our mortgage advisers are here to help.
The good news
- First-time buyers may find it easier to buy a home as the BoE is looking to ease affordability criteria for banks.
- The Mortgage Guarantee Scheme was put into effect in April 2021 and ends 31st December 2022. It gives first-time buyers and residential home buyers with a smaller deposit the opportunity to buy a property.
- Some predict the housing ‘bubble’ could burst or at least deflate by the end of 2022 as current data shows signs of a slowdown in price increases. Data from Nationwide building society shows the 12.1% increase in house prices in April 2022 decreasing to 11.2%10 in May. Rightmove (the largest property portal in the UK) has projected house price growth to drop from the current 9.7% to 5%11 by the end of the year. This is good news for those looking to buy.
How can we help you with your mortgage?
If in doubt, seek advice.
Our qualified mortgage advisers are here to advise you on planning your next move, re-mortgaging, or giving your children a hand with their first step on the property ladder.
We work with several companies who provide mortgages for thatched and listed properties.
Review your mortgage now.
Email us: email@example.com
What matters to you, matters to us.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Your home may be repossessed if you do not keep up repayments on your mortgage.