Mortgage rates are changing rapidly – what should you do in the current turmoil?

What has happened to make the mortgage market so volatile?

There are a number of factors that are influencing the deals available, and these include the Bank of England lifting the base rate, the government’s tax-cutting mini-budget, which made the money markets very jittery and the large increase in government borrowing which is necessary to help reduce energy bills through support packages.

These changes have led the Bank of England to announce that there may be more interest rate rises on the way and the markets are now working on the fact that the base rate could rise to 6% by spring, this fact alone has caused lenders to pull cheaper deals that look unprofitable for them.

The current situation is changing quickly and is very uncertain, so it is difficult to give any hard and fast rules, as it is difficult to predict what will happen but here are some ideas to consider.

How mortgages are affected by base rate rises

If you have a tracker rate or variable mortgage, the rates generally increase as the base rate rises, your lender will notify you of any changes to your rate.

If you have a fixed-rate mortgage, there will be no change to your payments until the end of the mortgage deal. At this point, you can either move to a standard variable rate or you can fix your rate again, and although this may be more expensive than your current rate it is still likely to be cheaper than going with an unpredictable variable rate.

Many clients are contacting us asking if they should act now and unfortunately there is no easy answer. If you are within six months of the end of a fixed rate or are already on a standard variable rate, it’s worth talking to a mortgage adviser sooner rather than later.

Before you look at changing your mortgage, it is well worth checking the details of your mortgage. Make sure you know:

What rate you are on?

What type of mortgage – fixed, tracker or standard variable rate (SVR)?

When is your current deal over? – i.e. when does the fixed rate end?

When must it all be repaid?

Is there an early repayment charge if you switch mortgage products now?

When should you act if you have a fixed-rate mortgage?

Most fixed rates last for two, three or five years and some may be as long as 10 years. Many lenders will agree a rate for you 6 months in advance, so you should talk to your adviser 6 or 7 months before your deal ends.

What should you do if you are on a variable or tracker rate?

Interest rates have been increasing a lot and likewise, lenders are currently changing their products frequently. If you are on a standard variable rate, you may wish to find out what products are available with both your existing lender as well as other lenders. It may give you some peace of mind to fix your rate and know with certainty what your monthly mortgage costs will be, but this may not suit everyone for example, if you wish to move home soon then you may choose not to tie yourself into a fixed rate mortgage.

Changing products with your existing lender is known as a product transfer and these can be easier to get accepted for and may have lower fees.

You may want to look at using savings to get a cheaper rate. If you owe more than 60% of your home’s value on a mortgage, then the lower your ‘loan to value’ ratio the cheaper your mortgage should be. Interest rates normally change at 60, 75%, 85% and 90%.

You would always be wise to have an emergency fund, but if you have a lump sum in savings it may be worth considering using some, especially if you are very close to the next band.

Who do I speak to?

Well, of course, we would always recommend talking to a mortgage adviser but at the moment it is more important than ever. This is because all lender’s acceptance criteria differ from others and they are also subject to change. For example, one lender may only count your base salary, where others might include commission or overtime. Advisers also have many deals that are not available to the public and have knowledge about whether a particular rate might be finishing very soon.

If you would like to discuss mortgages or any other financial matter, J Finance, will be happy to help. Please contact us without obligation.