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7th July 2022
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Increasingly costly mortgage rates are adding to the cost-of-living pain for homeowners whose current deals are coming to an end. Knowing how to source the best mortgage rate, and the one most suited to your long-term financial plan can be complex and challenging.

Despite the mass of media coverage on rising inflation over the past year, it is typically not until people are personally affected that they realise the gravity of the situation. For many, that moment has been the first time opening their utility bill to discover the cost of their energy consumption has rocketed, or when filling up their vehicle at the petrol station.

For others, it’s been when they’ve come to source a new mortgage product. Last month, the Bank of England raised interest rates for the fifth consecutive time, to 1.25%, with further rises likely later in the year. The ramifications stretch far and wide, but the most immediate, and perhaps most tangible as far as homeowners are concerned, are on mortgage rates.

The average standard variable rate (SVR) for June reached 4.91%, a 0.13% jump in May and 0.51% in December 2021, according to Moneyfacts. This is the highest SVR that the data group has recorded since it hit 4.94% during the global financial crisis in February 2009. The current SVR has surpassed the pre-pandemic average and reverted to a rate of 4.90%.

It barely seems believable against the current backdrop that just months ago mortgage lenders were locked in a race to the bottom, with fixed rates hitting a historic low of 0.79%. Today, there are no fixed rates available below 2.5%. Yet with the worst yet to come as the Bank of England expects inflation to hit 11% this autumn, people are keen to lock rates in.

“Understandably, some clients are concerned about the impact of rising interest rates on their mortgage payments,” says Marie Dalrymple, Mortgage and Equity Release Specialist at Ascot Lloyd. “With interest rates seemingly continuing to rise, we would encourage clients to secure their next mortgage deal in plenty of time before the end of their current term.

Some lenders allow clients to secure their next rate up to six months in advance of the end of their current mortgage interest term, allowing clients to secure lower rates than may have been available if they had waited until the end of their term. Should interest rates continue to rise as they have been in recent months, this could mean significant savings to clients’ monthly outgoings by planning ahead in this way.

Not only this, but it could prevent the short-term hike in mortgage payments some people experience when they wait until the end of their term to secure their next mortgage deal, and their interest rate automatically moves on to a higher rate whilst a new deal is secured. Whilst these can be worrying times for clients and their personal finances, together with the help of specialists such as ourselves, there are positive measures that can be taken to help minimise the impact of the current economic challenges.”

An unwanted leap

It’s easy to see why. A 40-year spike in inflation has created a significant cost-of-living squeeze during a year when people and businesses thought they would finally be able to return to normality following two years of the pandemic. With energy, transport and food bills up substantially, a leap in mortgage payments is the last thing anybody wants to contend with.

Yet this is a prospect that many homeowners are facing. Those with a two-year fixed rate expiring last month – on an average house with a 25% deposit – would have seen their monthly repayment sum jump by 16%, from £699 to £811 after remortgaging, according to Hamptons estate agents. The extra £112 a month in interest payments amounts to £1,344 over a year.

Just as spooked by the market volatility as anyone else, and aware that money will almost certainly be more expensive to borrow in a matter of just weeks or months, lenders are rolling out interesting pricing strategies. While two-year fixed deals are traditionally considerably cheaper than five-year fixes, currently there is very little between them.

There is nothing, in fact, between the current price of three-year and five-year fixes and, astoundingly, lifetime fixed rates now start at 3.09%, cheaper than most five-year fixes. Discounted and tracker rates are the cheapest but also riskiest in an inflationary environment.

Mortgage conundrum

All of this presents something of a conundrum for homeowners with a mortgage, especially those in or approaching retirement. The mortgage market is complex at the best of times, but even more so when you are trying to make the right decision for your entire financial future, of which a mortgage is just one piece of the puzzle.

When the cost of living rises substantially, it can be challenging to remain committed to a long-term financial strategy. However, your financial adviser can keep you on track while also providing opportunities to ease the strain in the short term too. It’s important to remember that ups and downs are always to be expected in a long-term plan. There is a growing sense that after a slow start, the world’s central banks are getting to grips with inflation through an aggressive interest rate policy. While that might be painful in the short-term we expect those higher rates to fall sooner rather than later; in the meantime, your financial adviser will provide the insights and reassurance we all need.

“Given the changes in the market, now is an important time to get back in touch with your financial adviser to reevaluate your financial circumstances against the current economic backdrop,” says Jo Bentley, Independent Financial Adviser at Ascot Lloyd. “Financial planning and the mortgage market might seem scary at the moment, but your financial adviser together with our specialist mortgage advice team will be able to work with you to ensure your plans are on track and to find the right mortgage deal to meet your objectives in both the short and long term.”

Taking on a mortgage whether to buy your own home or for investment is a major life decision while remortgaging to the right deal can be confusing. At Ascot Lloyd, we source products from the whole of the market, often with access to special rates and products that aren’t available direct to you on the open market. Crucially, an expert mortgage adviser will analyse your circumstances and needs and search the market to get the best deal for you.

Please contact your Ascot Lloyd Independent Financial Adviser in the usual way if you have any questions about your financial plan or circumstances. Alternatively, you can get in touch via the contact form below or the telephone number at the top of this page.

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