Two weeks ago rising energy bills dominated the headlines, now it’s concern over mortgage repayments. With so many immediate pressures on household budgets, the long-term financial resilience of the nation is under threat.
Events this week has wreaked havoc on the mortgage marketplace, with lenders pulling competitive home loans in anticipation of a higher interest rate environment, which could come sooner than expected.
Not only have mortgage rates risen to levels we haven’t seen since the financial crisis, but some major lenders have withdrawn their mortgages entirely for new customers.
The money market is in a state of flux, with a rise in gilt yields feeding into the swap rates that drive the market for fixed rate mortgages. The sheer scale of uncertainty makes it difficult for homeowners to determine the best course of action for their circumstances.
Anyone looking to buy or remortgage in the near future could consider securing a deal now – but there are no easy answers. Mortgage deals are often valid for a number of months, and it is not too early to start looking for the best deals now.
Deciding how long to fix your rate can be tricky. A long-term fixed rate mortgage means you’d escape any rate rises coming down the road until the end of the deal as well as save you on the costs of remortgaging.
However, the widening of the disparities in the prices of short- and long-term fixes complicates matters. In some cases, it might be cheaper in the long run to opt for a shorter-term deal – but that all depends on the where interest rates go next.
Remaining on a standard variable rate could also be an option, if the gap between the rates on deals on offer and SVRs narrows.
Each lender has its own standard variable rate which is influenced by the Bank of England’s base rate but not tied to it.
This means lenders might not increase standard variable rates every time the Bank of England ups its base rate.
For those who can afford to cope with the extra and don’t want to lock in to a higher fix, reverting to the standard variable rate once their initial mortgage deal ends until mortgages rates becomes more competitive again could be an option for a period of time– but this is not for everyone and you would need to do some careful calculations before choosing to accept an SVR for a period of time
There is no silver bullet solution to rising mortgage rates. It is important to focus on your own circumstances, for example, how long you plan on living in your current property, to determine the best course of action. Alongside rising energy bills, this additional pressure leaves people with less spare cash in the pot for pensions and ISAs.
Myron Jobson is senior personal finance analyst at interactive investor