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The base rate was raised many times in 2022 and is currently at 3.5 percent with the bank expected to continue to increase the rate. The central bank is meeting this Thursday to discuss raising the base rate with some expecting it to rise to four percent meaning mortgage repayments could go up too.
Those on fixed rate mortgages are protected from the interest rate increases for the term of their mortgage.
But those who are coming to the end of their term may be concerned they will see a large increase in their repayments when they sign up for a new deal.
Nathan D’Cruz, a financial adviser from Hoxton Capital Management, urged people on fixed rate deals to sign up to a new offer as soon as possible.
He told Express.co.uk: “In my professional opinion, once a fixed rate term is finished on a mortgage, then it would be best to consider re-mortgaging straight away because the new rate is likely to be less than the default rate you would receive after the fixed term ends.
“If you think rates will come down, then a tracker mortgage type may be better to consider, and alternatively, if you think rates will go up, then a fixed rate may be more appropriate. “However, waiting is unlikely to be the best idea because you would be on the default rate for longer, which could be costly between the mortgage term ending and getting a re-mortgage completed.
“It would always be appropriate to seek advice on this first, and that advice should be personalised for you.”
Those on flexible rate mortgages face another repayment hike this week. For the average property in the UK which costs £270,708 with a 75 percent loan-to-value mortgage, a 0.5 percent rate increase this week would mean monthly mortgage repayments increasing by another £52.
The Financial Conduct Authority (FCA) has warned more than 750,000 households are at risk of mortgage default as interest rates rise.
Alastair Douglas, CEO of TotallyMoney, emphasised why getting any available help from lenders is crucial for the 750,000 homeowners on the verge of defaulting.
He said: “If you’re one of the 750,000 homeowners at risk of defaulting on your mortgage in the next two years you must contact your lender as soon as possible.
“The Financial Conduct Authority recently instructed firms to support borrowers with measures which included allowing customers to make lower repayments, switch to interest-only, or moving to a different rate.”
He warned missing a payment could affect a person’s ability to access credit “for years to come”.
He explained: “Not just for big ticket items like loans and mortgages, but also for things like mobile phone contracts and car insurance.
“Lenders usually check a customer’s credit report during the application process, and the best deals are reserved for those with the best scores.”
Mr D’Cruz warned it’s not clear when interest rates will go down. He explained: “Inflation indirectly affects mortgages and interest rates for savings accounts due to the central bank’s increasing interest rates to combat inflation.
“If mortgage rates go up, then monthly repayments could increase (unless you have a fixed rate).
“Inversely, this would benefit savers because the savings rate with their bank may increase and generate a higher yield on savings capital.
“The Bank of England’s inflation target is two percent. So naturally, if inflation is above that level, then due to monetary policy (which we have already seen with rates increasing), it would be natural to assume inflation will come down over time. Still, it is not obvious exactly when that will happen.”
Some analysts are predicting the base rate will peak at 4.5 percent this year. Laith Khalaf, the head of investment analysis at AJ Bell, said: “Markets are currently expecting interest rates to peak at 4.5 percent in 2023, which looks a reasonable estimate as things stand at the moment.
“This is notably lower than the 5.25 percent peak anticipated when the Bank last produced a full economic report in November 2022 and shows how significantly expectations have shifted.
“Other things being equal this should push economic growth forecasts up, so it’s surprising to note unofficial reports that the OBR is actually set to downgrade the UK’s growth forecast for 2024 as a result of continued inflationary pressure.”
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