As we finish up the year with Omicron in full swing, anyone eyeing up the property industry will be interested to see how the variant might affect the economy and impact mortgage costs in 2022.
From mid-December, the Bank of England raised the bank rate from 0.1% to 0.25%. This was unexpected as many forecasters had predicted this would be delayed until early 2022. The 0.1% rate had been in place since March 2020 at the onset of the pandemic. However, rising inflation and a 5.1% increase in the cost of living means that the Bank of England has been forced to act and raise the rate now.
The bank rate is tied to everything that consumers buy. Estate agents in Brentwood explain that in the world of finance, this means that your mortgage product, along with insurance and savings could be impacted by whatever the current bank rate is.
When the bank rate increases, lenders will act by raising the interest rates on their own mortgage and loan products, meaning that regular monthly repayments could become more expensive depending on the terms of the product.
It is widely predicted that the recent bank rate hike will not be the last. Economics experts expect that it may hit 0.75% by the end of 2022 to combat rising inflation. The Bank of England’s monetary policy committee (MPC) meets to discuss and set the bank rate approximately 8 times per year, or roughly every 6 weeks. So, there will be plenty of opportunities for this to increase throughout 2022.
Homeowners who have already taken out fixed-rate mortgage products won’t be affected for now. Having a fixed rate deal means that your monthly payments are rigid for the term of your product and can’t be affected by any rise in interest rate hikes.
However, once the fixed rate comes to an end, mortgage customers could notice a swift increase in their bill which could even become unaffordable for some.
In anticipation of this problem, many homeowners are already choosing to switch to a new long-term fixed rate deal so that they’re able to lock in their costs now. If you are charged a penalty fee for moving products before the end of your deal, then it’s worth consulting with a mortgage advisor to fully understand whether this is a feasible financial solution for you.
Even though mortgage customers might be concerned about rising interest rates and the potential for soaring monthly payments, there is great news in the market. Low-cost deposits and high LTV mortgages are back and are readily available after taking a backseat in the early pandemic.
With the introduction of the 95% mortgage guarantee scheme, this will help to ensure that first-time buyers are able to enter the market affordably, whilst driving the market and keeping property prices looking strong.