Since 2021, The Bank of England (BoE) has increased the interest base rate 10 times in a row in an attempt to tackle inflation and the cost-of-living crisis. From 0.25% in December 2021, interest rates have now risen to 4%, the highest level in 14 years.
When the BoE increases the base rate, other banks follow suit and increase their own interest rates. This has an impact on the cost of borrowing, affecting loans and mortgages.
So if you’re looking for a mortgage you may be wondering how this will affect your chances, especially if you have bad credit. Or if you already have a mortgage, it might be worrying to think about how this will impact your monthly payments.
To give you some clarity, this blog will look into the rise in interest rates and what it means for the mortgage market.
Interest rates increase in line with inflation. Due to rising energy costs and the invasion of Ukraine impacting supplies around the world, the cost-of-living crisis has increased significantly and caused inflation to rise.
It’s hard to say when interest rates will stop rising, so this uncertainty makes it difficult to work out when the economy will go back to normal. This can make it hard to make financial decisions, including which type of mortgage to go for.
It’s been predicted that the base rate will increase to around 4.6% by July 2023 and will fall over the next five years to approximately 3.5%. However, these predictions can continue to change so it’s important to keep an eye on any future predictions if you’re thinking about getting a mortgage or changing your current mortgage deal.
If you’re worried about your mortgage rates increasing, it will depend on what type of mortgage you go for. If you already have a mortgage, this is how a rise in interest rates will impact you:
If you have a fixed-rate mortgage, then the increase in interest rates won’t impact you until your deal ends. A fixed-rate mortgage keeps your monthly payments the same for as long as your deal lasts, so if you’re not sure when your deal is coming to an end, it’s worth checking.
When your deal comes to an end, you will be put on to your lender’s standard variable rate. This is guided by the BoE’s base rate, so if it continues to rise, the more you’ll end up paying. Before your deal comes to an end, we recommend that you look at other deals to avoid switching to a standard variable rate.
A tracker mortgage is linked to the BoE’s base rate, but this can be higher than the base rate, or it could have a discount. Whereas a standard variable rate mortgage can change at any time, alongside interest rate changes. This means your monthly payments can go up and down.
At the time this was written, the average interest rate on 2-year fixed-rate mortgages is around 5.15%, but this will increase further if the BOE continues to increase the base rate. The Bank of England will decide on the next interest rate levels on 23rd March 2023.
If you’re looking to get a mortgage but have bad credit, we’re here to help. It’s usually perceived that getting a mortgage with bad credit is extremely difficult. Our knowledge and contacts make it a lot easier.
For those with a history of bad credit, whether you’re looking for an IVA mortgage or you have defaults on your credit history, you’re likely to be expected to pay higher interest rates.
For example, if someone with good credit is paying 5% interest on a standard rate mortgage, a bad credit applicant may need to pay around 8-10%. This depends on a number of factors, such as your deposit and salary.
It’s our job to get you the best deal possible, so if you have bad credit but dream about owning your own property, we can get you there. We know the steps you need to take to better your chances of a great deal and we have access to lenders who will be willing to accept you.
With interest rates increasing, getting a mortgage is likely to be more expensive. However, rates are expected to go down, so even if you have a history of bad credit, you can speak to us to get the best deal possible.
Adverse Mortgage Advisors can help you prepare for further interest rate increases and we specialise in adverse credit mortgages, so if you’d like advice or you want to discuss getting a mortgage, get in touch with us.
If you have questions about getting a mortgage with an adverse credit score, read our FAQs. Our wealth of knowledge within this market means that we’re confident in our ability to offer specialist mortgage advice and secure the mortgage you want regardless of your credit history.
