Nobody wants to pay more for their mortgage than they have to. So it\u2019s no surprise that many of us have our eyes fixed firmly on the next meeting of the Bank of England\u2019s (BoE) Monetary Policy Committee meeting on the 16th of December, where a potential rate rise could be decided.<\/p>\n
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Why are interest rates expected to rise?<\/span>\u00a0<\/strong><\/p>\n At the start of the pandemic, the BoE enforced two emergency rate cuts \u2013 reducing the base rate down to its lowest ever level of 0.1%. For mortgage borrowers, this was good news. Borrowing had never been cheaper, meaning there were excellent mortgage deals to be had \u2013 and those on tracker or variable rate benefitted from an immediate rate cut.<\/p>\n However, inflation has spiralled over the last 12 months, and is expected to rise near or above 5% in the next year. The BoE will look to mitigate this by raising the base rate and encouraging people to save not spend, tampering down the economy slightly and reducing demands for goods and services.<\/p>\n Raising interest rates to mitigate inflation can be a rather blunt instrument, and isn\u2019t always effective. But while we can debate the effectiveness of this as a monetary policy, the fact remains that mortgage borrowers need to pay close attention \u2013 and potentially act quickly to avoid costly increases.<\/p>\n The benefits of a fixed rate mortgage<\/span><\/strong><\/span><\/p>\n Taking out a \u2018tracker rate\u2019 mortgage product \u2013 that is, a type of variable rate mortgage which moves up and down in line with the base rate \u2013 has often seemed like an appealing option over the last decade, when interest rates have remained so low. Tracker rates provide maximum flexibility, which is appealing for many.<\/p>\n However, the general expectation is that interest rates will rise over the next few years, as the BoE strives to manage rising inflation. For mortgage borrowers on a tracker or variable rate, this should be a cause for concern \u2013 especially for those with large mortgages. On a multi-million pound mortgage, even a fractional interest increase on a monthly repayment can represent a significant amount.<\/p>\n Of course, it\u2019s not just a problem for those on tracker rates \u2013 anybody whose current mortgage term is coming to an end, or who is taking out a new loan, will also need to consider how they protect themselves against the potential risk of rising interest rates in the future.<\/p>\n Fortunately, there is a way to avoid this risk. With a fixed term mortgage product, borrowers can fix the cost of their payment for two, three, five or even ten years \u2013 depending on the lender in question. This gives you certainty and peace of mind over your costs.<\/p>\n How long should I fix my mortgage for?\u00a0<\/strong><\/span><\/p>\n When considering what fixed rate mortgage product to take out, there\u2019s a balance to be struck between securing the best rate and fixing your costs for the longest period. A two-year fixed rate mortgage product will be cheaper than a five-year fixed rate product, so it\u2019s worth speaking with a broker to calculate the best deal for your personal circumstances.<\/p>\n It\u2019s also worth discussing your case with an expert because, in addition to the rates you\u2019ll find online or advertised by mainstream banks, we also have access to the widest possible range of private institutions and specialist lenders. So, the best possible deal for you may only be accessible by exploring these avenues. Whatever your current situation or background, our team is happy to have a confidential conversation to give you a sense of what you could achieve.<\/p>\n It may even be the case for you that a fixed rate mortgage actually isn\u2019t<\/em> the best option \u2013 our recommendation for you will always consider your priorities and personal circumstances to find the best solution.<\/p>\n Security for the future<\/span><\/p>\n Nobody knows for sure what will happen next \u2013 many expected that rates would rise in November, only for the Monetary Policy Committee to hold firm. However, after a decade of historically low rates, what is<\/em> clear is that the only way is up for interest rates in the future.<\/p>\n With the next meeting to confirm rates just around the corner, the time to start the conversation is now. And whether you have a mortgage that needs refinancing or are looking to take out a new property loan, it may be sensible to act now to protect yourself against the rising cost of finance.<\/p>\n