As a High Net Worth (HNW) client, overseas investor, foreign national, or expat, understanding the implications of inflation and interest rates on your mortgage in the UK is crucial for making informed forward-thinking financial decisions. In this market update, we will explore the significance of inflation and interest rates, their impact on your mortgage, and how Articus Finance can assist you in navigating these factors.
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1. Understanding Inflation and Interest Rates
According to the Economics Observatory, the rising cost of living has significantly strained household budgets due to price increases surpassing wage growth. However, mortgage holders can also reap benefits from inflation, as it diminishes the value of their outstanding loans, providing them with a favourable advantage.
Explaining inflation: Inflation refers to the general increase in prices over time, eroding the purchasing power of money – according to BBC.
Unravelling interest rates: Interest rates determine the cost of borrowing money – according to BoE.
The crucial aspect to consider is that mortgage contracts are typically specified in nominal terms, without accounting for inflation. Consequently, higher inflation directly reduces the real value of the outstanding mortgage, benefiting borrowers.
When inflation is at 10%, its impact is significant. For instance, a £200,000 mortgage would decrease in real value by around 10% or £20,000 during 2022. If inflation averages around 6% in 2023, the decrease would amount to approximately £12,000.
2. Impact of Inflation and Interest Rates on Mortgages
What does inflation mean for you as an investor?
As an investor, inflation holds significant implications for your financial decisions. Articus strongly advises our clients to consider inflation in every investment strategy. Inflation has the effect of diminishing the real returns on your financial investments and eroding your purchasing power over time.
What is the impact of high inflation and rising interest rates for loans with fixed or variable interest rates?
Inflation itself does not directly determine mortgage interest rates.
Instead, central banks – like the Bank of England – establish their policy interest rates based on their evaluation of the overall economic situation, including factors like inflation.
However, the effects of elevated inflation and increasing interest rates on mortgage loans can differ depending on the nature of the interest rate—whether it’s fixed or variable.
Fixed Interest Rates: when an individual agrees with the bank to have a fixed interest rate for a certain period. Even if interest rates go up in the UK market, the client loan’s interest rate stays the same, and the monthly payments won’t increase.
Variable Interest Rates: Rising interest rates directly affect Borrowers with variable-rate mortgages, leading to higher monthly repayments. This could strain household budgets and may result in increased default risk for borrowers who struggle to meet higher payments.
During periods of high inflation and rising interest rates, fixed-rate mortgages offer protection against immediate increases, while variable-rate mortgages expose borrowers to potential payment fluctuations. However, each situation is unique, Articus are available to assist you in making the optimal decision for your investment.
Affordability and mortgage repayments
Pay particular attention to the risks of over-indebtedness.
Given the current high inflation in the UK, Articus advises you to carefully think about the effect of mortgage loan repayment on your monthly and yearly budget. Additionally, you should assess whether there is a requirement to remortgage other properties you may own.
In order to avoid loan repayment issues, get in touch with your broker as soon as possible to explore potential solutions. This could prevent the client from incurring penalties for late payments and facing future restrictions in securing new loans.
3. Articus Finance: Assisting Clients in Navigating the Mortgage Landscape
3 steps you can take to deal with the impact of inflation and rising interest rates on your financial investments in the UK
1 – Pay attention to the real return of your financial investments
When you look at property investment options or think about the risks and rewards of it – it’s important to consider inflation risk. It can affect the actual value and returns of your investment. Remember, inflation risk adds to the usual expenses of investing, like entry and exit fees and transaction costs. Articus provides services to support our clients in order to compare the costs of every financial investment and find the best option possible.
2 – Consider diversifying your investments
Always keep in mind the fundamental principles of investing
- Keep a well-diversified portfolio.
- Ensure your investments align with your goals.
By diversifying the types of products in your portfolio, you may generate a high enough return to counter the effects of inflation.
3- Get advice
Seeking the guidance of a mortgage specialist can lead to better-informed decisions.
If you need more clarification about how inflation might affect your mortgage, Articus is available to discuss it with you. We’ll assess whether updates are necessary for your profile and reevaluate the suitability of your current mortgages.
Expertise in the HNW (High Net Worth) market is crucial to cater to the specific needs of wealthy clients. Articus Finance excels in supporting HNW clients, demonstrating a profound understanding of the distinct challenges faced by this exclusive clientele.
To access additional information, download our HNW guide by clicking here.
At Articus Finance, we proactively manage mortgages for clients seeking specialist finance, such as bridging, development, and commercial solutions. Our goal is to assist these clients in selecting the most suitable mortgage solutions tailored to their unique needs.
Additionally, we explore remortgaging options to ensure that our clients are not only aware of the available alternatives but also have the opportunity to seize better opportunities in the market.
Articus Finance is dedicated to providing tailored solutions for overseas investors and expats seeking to secure mortgages in the UK and worldwide. Our expertise lies in assisting clients from various countries, ensuring a smooth and efficient process. Visit our Countries’ pages to find more. We offer a comprehensive range of services, including expert guidance in navigating complex legal and tax considerations, facilitating currency exchange, and delivering personalized mortgage solutions to suit individual circumstances. With our support, overseas investors and expats can confidently navigate the intricacies of the mortgage market and make sound financial decisions, regardless of their location.
Articus Overview
Inflation and interest rates significantly influence mortgages for HNW clients, overseas investors, foreign nationals, and expats. Understanding their impact is vital for making informed decisions. Articus Finance offers tailored solutions and expertise to help navigate these complexities, ensuring the best choices for your financial goals. Staying informed and seeking expert advice can lead to effective mortgage management and long-term financial stability in an ever-changing economic environment. Get in touch today.