You will probably have come across the recent news headlines discussing the persistently high inflation, which is significantly surpassing the Bank of England's target rate of 2%. As a consequence, interest rates are continuing to climb, exceeding initial expectations by a considerable margin. This situation is directly affecting mortgage rates, resulting in a further increase in the cost of homeownership. Moreover, this adds to the challenges of navigating the ongoing Cost-of-Living crisis.
The current mortgage market is presenting significant challenges for homeowners. According to Moneyfacts, the interest rate on the average 2-year fixed-rate mortgage deal has surged to 6.86%, while 5-year fixed deals are not far behind, averaging at 6.36%. As a result, homeowners planning to remortgage this year are facing the possibility of paying hundreds of pounds more each month in mortgage repayments compared to their previous deals, secured at much lower rates.
Analysts are sounding the alarm, forecasting that the situation may worsen in the coming year. It is estimated that the average household remortgaging in 2024 could end up paying up to £2,900 more per year due to the continuously rising rates.
Unraveling the Factors Behind the Increases
The Bank of England has been consistently raising interest rates since 2021 as a measure to curb consumer spending and encourage saving, thereby addressing the high inflation levels observed across the UK economy. This inflation surge has been particularly evident in the increased prices of everyday essentials such as groceries and energy bills.
However, the impact of these interest rate increases on curbing inflation seems to be falling short of experts' expectations. As a result, mortgage rates are experiencing a domino effect, with lenders withdrawing their previous products and relaunching them with higher rates.
Anticipating More Challenges The outlook for the market remains bleak, especially with the Bank of England confirming that over 1.3 million households are due to remortgage their properties before the end of 2023. These homeowners will be in for a shock when they encounter the new, higher rates, especially considering that they had previously secured mortgages at rates hovering around 2% or lower.
To illustrate the impact, let's consider an example. The average mortgage holder could face a daunting £200 increase in their monthly repayments if their mortgage rate rises by 3 percentage points, according to research from the Resolution Foundation think tank.
Taking Proactive Steps Amidst this challenging scenario, it's essential for homeowners not to ignore the situation. If you're concerned about your ability to manage mortgage payments, it is advisable to reach out to your lender promptly. Falling behind on mortgage payments by 90 days could lead to potential property repossession, but there are assistance options available to prevent such an outcome.
By initiating a conversation with your lender, you might explore creating a plan to handle your payments or even negotiate a forbearance agreement, providing a short-term solution to catch up on any missed payments.
Additionally, if you find yourself facing financial hurdles, don't hesitate to seek guidance from experts who can examine your specific circumstances and offer practical advice to help you navigate this challenging time. Remember, being proactive and seeking support can make a significant difference in overcoming the obstacles posed by the current mortgage rate landscape.
We recommend that as well as speaking to your lender if you are struggling, please do not hesitate to reach out to us and let us know if you have any challenges, we can take a look at your specific circumstances and offer practical advice that can hopefully assist in your situation.
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