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It’s hard for those with mortgages not to look back on the historically low-interest rates of 2020 and 2021, implemented to help the average homeowner avoid financial difficulties through the COVID-19 pandemic, and think of those as the good old days.
Sadly, beginning in December 2021, interest rates have been climbing swiftly, and as we entered 2023, the base rate sat at 3.5 and has since had 13 consecutive increases reaching a high of 5.00%.
Naturally, the actual rate of interest you’ll get with a mortgage today sits a little higher than this, which is how banks make their profits. Experts are predicting that these rates are yet to peak, with inflation not showing signs of detraction, some lenders are forecasting further increases of 6 % or more.
Most fixed-rate mortgages coming up for renewal in 2023 were fixed at rates around 2%. This means that those who have taken out mortgages in recent years will face a sizable jump in monthly outgoings, whether they allow themselves to be switched onto variable rate mortgages or get a new fixed mortgage.
The affordability of mortgages will likely remain a challenge for many households in 2023. With interest rates reaching new heights, finding a mortgage you can comfortably afford will become increasingly difficult. Many in their 20s and 30s will face financial obstacles buying their first home.
Jeremy Hunt unveiled new measures to support homeowners with the increased costs of mortgage borrowing. These include:
In the meantime, those with mortgages need to stay on top of their finances, budget carefully and explore any available options that could help make mortgage payments more affordable in the short term. With careful planning and a little luck, homeowners can weather this storm.
You can use our mortgage calculator to forecast changes in your interest rate here: Mortgage Calculator.
If you’re looking for the best mortgage deals this month, Uswitch suggests a 6.44 % two-year fix (based on 75% LTV). Alternatively, a 2-year variable rate mortgage is available at 5.11%. Finally, a 5-year fixed is possible for 5.79%. The average standard variable rate (SVR) in the UK is 7.99%.
There is a suggestion that rates will continue to rise in the short-term but drop again over the coming few years – your risk appetite will then decide whether you want to lock in for a short fixed-rate mortgage or risk a variable rate or longer fixed rate.
Overall, the picture for mortgages through the remainder of 2023 is uncertain, but with careful planning and research, you should be able to find the best deal that works for your circumstances. It pays not to rush into any decisions as rates could change, so take time to find the best option.
It’s vital to seek financial advice and compare different deals before deciding, so make sure you shop around for the best option for you! If you would like any advice on getting started, please feel free to contact us.