In 2022, with interest rates at a level unseen for decades, thousands of homeowners will suffer changes to their mortgages. Many mortgage companies are planning to cancel or change their deals as interest rates continue to rocket this autumn.
How are mortgage providers responding to inflation?
Moneyfacts.co.uk has reported that hundreds of mortgage deals have been disappearing from the market. This is in response to the current market volatility.
The same thing happened during the recent recession that happened due to the Covid-19 pandemic, with mortgage deals being removed from the market as lenders were concerned about whether buyers might struggle to repay it, thus creating losses.
It seems likely that more and more providers will be pulling deals from the market as this situation continues.
What happens when my fixed-rate mortgage ends?
You will need to take out a new mortgage if your mortgage is among the 1.8 million fixed-rate deals that are due to end next year. This will come at extremely increased interest rates.
The majority of UK mortgage holders are on fixed-rate deals (around 75%), but when these end, you might suddenly feel the impacts of inflation. Markets are predicting a 6% rise in interest rates, which the Resolution Foundation think tank says would have a “huge impact” on mortgages.
A homeowner with a £140,000 mortgage with 17 years left on it could face an increase of £190 to their monthly payments if rates rise by 5%, or an increase of £270 if they rise by 6%. This can be roughly £1000 per year.
What should I do if my fixed-rate mortgage is about to end?
Discuss your options with your lender, and seek an independent financial advisor. The market is extremely volatile, so you should seek unbiased independent advice to assess the best options for your current situation.
If you already know your fixed-rate mortgage is going to end, you should already be shopping around for a new rate. This should be done up to 6 months before your current rate expires.
Your lender should get in touch with you as your fixed-rate mortgage is about to expire, in order to discuss your options with you. Be sure to consider independent advice as well, to ensure you are getting the best possible deal. Organisations such as Citizens Advice can be a good place to turn.
How will inflation affect my tracker or variable rate mortgage?
If you have a tracker or variable rate mortgage, you will already be experiencing the impacts of inflation. Tracker mortgages are currently £210 more expensive per month than before the rate increases began, and a standard variable rate (SVR) mortgage £132 more.
Should I keep my tracker or variable rate mortgage in 2022?
Many institutions recommend that you take action to change to a fixed-rate mortgage.
The Bank of England has already said they are prepared to increase interest rates even more in the near future, so you need to take action immediately to prevent your mortgage increasing even more.
Check which fixed-rate deals are available with your current lender, but also seek independent advice. It may seem like a bad deal, as rates are so high, but they are due to get even higher.
Can I withdraw my existing mortgage offer?
Those who have already agreed to a deal with their lender will likely not be affected. Existing applications will be processed as normal.
However, it is still recommended to check with your lender, and to discuss your options.
What does the current inflation rate mean for the housing market?
Stamp-duty was among the taxes that were cut in the mini-budget, but house prices and mortgage rates are still rising.
Rightmove estimates that house prices have increased by £2,587. Nationwide estimates that mortgage spending in August 2022 was 8% higher than in August 2021, and rent has gone up by 17%.
These new, higher mortgage rates are expected to have a negative effect on the volume of transactions in the housing market, as well as the value of houses. This could have an overall negative effect on our economy.
This, coupled with the plummeting value of the pound, could lead to higher house prices in the coming months and years.
