What does the latest base rate rise mean for people owning or seeking property for sale in Hertford?
Some helpful advice, strategies – and even some good news
In what the Guardian called a ‘Shock and Awe’ move, the Bank of England has just increased the base interest rate yet again – this time by half a percent to 5%. The move is in response to the latest inflation figures which, contrary to forecasts, are pretty much static – although, arguably, the consequent increase in people’s monthly mortgage payments (and of course rent too as landlords pass on at least a portion of their increased overheads) is inflationary in itself. The Daily Telegraph today (23rd June 2023), claims that this will mean millions of homeowners and prospective buyers face ‘the biggest shock to the system since the dark days of the financial crisis’.
This is not good news for anyone (except perhaps those with hefty savings). The banks are already hastily taking mortgage offers off the market so they can price the new rates into their deals – meaning disappointment for many on the brink of buying but who haven’t actually completed!
Capital Economics are predicting that fixed mortgage rates are likely to hit 6.5% or even higher – which could mean an increase of £2,900 a year for the average homeowner. And, of course, if your fixed rate deal runs out now, you face a huge and perhaps unaffordable increase.
So, what can you do?
Those of us who had a mortgage in the early 90s are already recalling the grim days when rates hit a terrifying 13% and the news was full of tales of people being forced to give up and simply leave their homes and put the keys through the building society’s letterbox. It’s true that we’re looking at half of the 90s’ worst rates – but since we now borrow twice as much relative to earnings, the impact is just as great.
Remortgaging
If, like some 800,000 people in the UK, you’re on a fixed rate that expires in the next 6 months, don’t wait for it to end. Start looking for a new fixed rate deal now – it’s quite usual to secure a new fixed rate deal up to 6 months before the current one expires. It’s not going to be cheap – but at least you get the current rate. Wait 6 months and it could be another percentage point higher! Better still, you won’t be committed to the deal. If something better turns up, go for it!
What about Tracker mortgages?
They look tempting right now – because at about 5.49% they’ve been fairly cheap compared to fixed rates – but that’s changing. In fact, they’re likely to rise to 6.9% if the bank rate hits 6% this year as forecast. And for the average household that would mean £1416 more in annual repayments.
And what if you’re about to buy homes for sale Hertford?
…. or anywhere else for that matter…
Your best option is to get a fixed rate mortgage for the shortest term possible. It will, of course, be expensive. But for the time being it can’t get any worse – and you’re not locked in when the chance to remortgage at a lower rate arises. And don’t lose heart. The seller has to be realistic too – after all it’s not just you that’s affected. Make a bold offer well below the asking price, pointing out that your budget has had to change!
For those staying put, perhaps the least painful option is to extend the period of the mortgage. Of course, you’ll pay more overall – but the reduction in monthly payments is helpful. For example, a £200,000 mortgage at 6.15 % would cost £1,307 a month… extend to 35 years and it drops to £1,161.
Finally, some good news!! Hot off the press – today the Chancellor Jeremy Hunt has met with bankers at 10 Downing Street today and a couple of reassuring measures have been agreed. Importantly – homeowners will get a 12-month break before any repossession proceedings can begin and if they approach their lender to discuss their problems the banks will strive to assist without any arrangements having an impact on their credit rating.