Bank Rate Increase
The most important interest rate in the UK. Often referred to as the ‘Bank of England base rate’ it has increased to 0.75% as of March 2022 which is a 0.50% increase since December 2021 and there is a few more to come over the course of the year as the battle of trying to keep inflation low and stable begins.
How does this affect borrowers?
If the Bank Rate changes it normally means banks change their interest rates not only lending products but also savings. For the purpose of this write up we will focus on the impact this will have on the lending side for mortgages and property finance in general. I think it’s fair to say over the last 6 months property transactions have not slowed down, Individuals and companies appear to be trying to ‘lock in’ the best available products prior to the perceived stepping stones of gradual interest rate increases we are all anticipating throughout 2022.
A lot of portfolio landlords are working to make sure they have their assets secured on longer term fixed rate products for future security and to be honest any type of property investor seems to be following suit very closely. In most cases when information like this about impending rate hikes are thrown around in conversation and meeting/conversations are scheduled by the powers above anyone with a mortgage/property finance facility in place will take the necessary steps to investigate what is available to them today to provide security, peace of mind and that their current products are in the best place for the medium to long term.
It goes without saying that many lenders over the last 3-4 weeks have started to implement various product withdrawals or changes in preparation for the most recent rate hike and this I believe is just the start. As I understand the next conversation regarding the Bank Rate will be in May 2022 with this knowledge many borrowers are seeking solutions to secure products that ultimately provide clarity on repayment or interest only products for the foreseeable future.
Although we do not know for sure the outcome of the meetings regarding rate hikes and whether the rates will go up, stay the same or maybe even go back down, we can only assume that they are happening with an intention to address inflation and they will inevitably be carried out through the course of the year and steer us in the direction that the monetary policy committee see fit.
What do you do to combat this?
It all comes down to your individual risk profile and what you think will happen. I would encourage anyone who owns property and has a mortgage or multiple property financing in place to keep a close eye on economy performance and the news regarding monetary policy.
Ultimately if your products are nearing the end of fixed terms and you want to explore what is available to potentially prevent being caught on the wrong side of interest rates, I’d suggest making enquiries into what’s available based on your individual situation asap. At least as a minimum you have an idea of where you stand in terms of any potential early redemption fees and you can look at whether the costs of repaying a facility early will outweigh the potential increase of costs within a new facility a few months down the line by taking action now.
As I mentioned earlier this is all about your risk profile and what you think is going to happen. As a CeMap qualified mortgage advisor I can assist you with finding the best solution for you based on your circumstances, but you would need a financial advisor for anything above and beyond that.
Summary
Its inevitable that when rate hikes are discussed and implemented financial institutions will do what is necessary to move with the rate increases and still endeavour to offer solutions for borrowers in all types of scenarios. The key here is understanding your situation and making a judgement call on what you feel is best for your own individual circumstances to address what is happening.
As always this is not financial advice and is content provided for educational purposes – you will find more in depth information across the web.
If you wish to discuss your current mortgage/property finance situation and find out how I can help don’t hesitate to get in touch.