How increasing interest rates affect mortgage borrowers


The Bank of England has raised interest rates after warning that the UK will enter a recession later this year. But how does this affect mortgage repayments? 

The experts at money.co.uk have revealed how this change can affect mortgage borrowers, as well as offered expert advice on how to keep your repayments low.

Claire Flynn, mortgage expert at money.co.uk comments:

“Mortgage borrowers are likely to suffer from increasing interest rates. For those on a fixed-rate mortgage, changes in interest rates will not apply until the end of your fixed period. However, for those on a variable-rate mortgage, such as a tracker or discounted deal, the impact is likely to be much faster, resulting in an increase in mortgage repayments.

“Tracker mortgages are aligned with the Bank of England’s movements, whilst discounted mortgages are determined by your lender and based on their standard variable rate (SVR). The SVR is not explicitly linked to the Bank of England’s base rate but is likely to be influenced by it. 

“When a fixed mortgage deal ends, you’re normally reverted to the lender’s SVR. However, SVR rates are usually higher than previous fixed rates and so your monthly mortgage repayments will increase.” 

So, how can I keep my mortgage repayments down?

“Those whose fixed-rate mortgage is coming to an end soon may want to consider changing their deal early to take advantage of interest rates before they increase. However, remortgaging before your current deal ends could mean you’ll need to pay an early repayment charge (ERC). You should compare the cost of the ERC to how much you think you could save by remortgaging, to ensure that switching early is worthwhile. 

“Although most mortgage deals in the UK are valid for six months so if your current deal is set to expire within the next few months, you could apply to remortgage early. This allows you to secure a rate and switch when your deal comes to an end, avoiding an ERC. 

“The critical eligibility factors when you remortgage are your credit rating, your income and affordability, your loan-to-value (LTV) and your overall financial position. If you were eligible for a mortgage before, you should be able to find a remortgage deal now. However, if your financial circumstances have changed significantly, you could find that the deals available to you are worse or you may struggle to remortgage at all.

“There are a number of steps you can take to get the best remortgage deal possible for you. For example, maintain a good credit rating and try to reduce your loan-to-value ratio (LTV). It’s also worth considering speaking to a mortgage broker, who can look at the whole available market to find the right deal for your circumstances”.