Will My Mortgage Go Up?20th of March, 2022
Your mortgage will only go up if you have a variable rate mortgage. This is known as a tracker mortgage - that follows any base rate change, or increase. A tracker mortgage will directly follow the base rate and the small print of your mortgage will tell you how quickly the rise will be passed on.
On a standard variable rate it is less straightforward, as these can change at the lender’s discretion. Most commentators say there is no reason for banks and building societies not to pass on the full increase, so you should expect a rise.
Most borrowers are, however, on fixed-rate mortgages. Interest rates have been so low in recent years that locking in has been attractive, and since 2019, 96% of new mortgages for owner-occupiers have been taken on fixed rates.
A small rise like this is unlikely to have much impact. Mortgage rates remain historically low, so people will still be able to rrow large sums. Further rate rises and/or sustained high inflation will have an impact though, as long as lenders’ affordability checks remain in place. Currently, most lenders use their standard variable rate plus three percentage points when “stress-testing” applicants’ finances, and as their rates increase the mortgages that are judged affordable will get smaller.
However, monthly bills are likely to remain a factor in affordability checks, and if they continue to get higher again the sums people are allowed to borrow will get smaller.
If your fixed rate is nearing an end, many lenders allow you to apply for a new fixed rate as much as 6 months before your current one ends which is a chance to choose a fixed rate before they rise again.
Contact me for your free mortgage advice.