How Interest Rate Rises Affect Mortgages & Remortgaging
The Bank of England (BoE) raised the base interest rate to 5% in June 2023, this is the highest base rate for 15 years.
This most recent rate rise, there have been 9 overall since the rate of inflation increased, has been made in order to try and reduce the current level of inflation. Inflation is now just below 9% and the actual target is 2%.
There has been opposition to this recent rate rise with the argument if the previous rate rises have not curbed inflation why should this rate rise do so?
Regardless of the opposition to the rate rises, many economists are now expecting yet more rate rises with some predictions suggesting the base rate could peak at 6%.
What this means for mortgages and remortgaging
Interest rates play a key role in the housing market and they affect both prospective home buyers and existing home owners who are looking to remortgage. It is important to understand how the latest interest rise may affect you and your family.
It is also worth considering more rate rises, in particular if you are looking to fix your mortgage rate now in an effort to negate the impact of another BoE base rate rise from impacting you.
Higher Mortgage Rates:
One of the most immediate effects of rising interest rates is the increase in mortgage rates. Lenders adjust their rates in response to changes in the Bank of England's base rate. As a result, new borrowers could face higher borrowing costs. This can make it more challenging for individuals to afford a mortgage, potentially reducing the number of buyers entering the housing market.
For people aspiring to purchase a home, the higher mortgage rates resulting from the interest rate rise may decrease affordability. With larger monthly payments required, some potential homebuyers may find it difficult to qualify for the loan amount they initially anticipated. This could lead to a slowdown in the demand for homes and a potential cooling of the housing market.
Many housing market experts, such as Zoopla, are predicting a house price fall of 5%, and are attributing this to there being more supply than demand as some people will effectively be priced out of the housing market.
Impact on Existing Borrowers:
Existing homeowners with adjustable-rate mortgages may be directly affected by the interest rate increase. If their mortgage rates are tied to the Bank of England's base rate, they could experience higher monthly repayments. For some borrowers, this may strain their budget or limit their ability to meet other financial obligations.
Remortgaging is a popular option for homeowners seeking to secure better interest rates or release equity in their properties. However, rising interest rates can impact the remortgage market in several ways:
- Reduced Incentive: As mortgage rates increase, the potential savings from remortgaging may diminish. Homeowners may be less motivated to refinance their loans if the offered rates are no longer significantly lower than their current rates. This could result in a slowdown in the number of people choosing to remortgage.
- Financial Planning: Homeowners who were considering remortgaging to release equity for home improvements, debt consolidation, or other purposes may need to reassess their options. Higher mortgage rates could affect the affordability of the new loan, potentially altering financial plans and decision-making.
- Timing and Rate Lock-In: Homeowners exploring remortgaging options might feel a sense of urgency to lock in lower rates before they rise further. This could lead to an increase in remortgage activity in the short term, as borrowers seek to secure favourable rates while they are still available.
The recent interest rate rise by the Bank of England has potential implications for both mortgage seekers and those considering a remortgage. Higher mortgage rates may pose affordability challenges for new buyers and impact the demand for homes, potentially leading to a slower housing market. Existing borrowers with adjustable-rate mortgages may experience higher monthly payments, affecting their financial plans. The remortgage market might see a reduced incentive for homeowners to refinance, particularly if the offered rates are less favourable. However, homeowners with immediate remortgage plans may opt to take advantage of current rates before they rise further.
As always, it's crucial for individuals to stay informed about the latest developments in interest rates and mortgage market trends. Consulting with financial professionals or mortgage advisors can provide personalised guidance based on current market conditions. By being proactive and well-informed, individuals can more effectively navigate the evolving housing landscape and make more informed decisions regarding mortgages and remortgages in light of the changing interest rate environment.
If you would like to speak to one of our professional Mortgage Advisors about a new or existing mortgage then please do get in touch and we will be happy to help you secure the best deal on the market.
Please note: Your home maybe repossessed if you do not keep up repayments on your mortgage or other loans secured on it.
The importance of making a Will
The current UK property market can be considered as somewhat turbulent. With property prices currently falling at their fastest pace since 2009, according to the BBC, many people will be considering getting on the property market for the first-time or possibly looking to move to a better property.
A Will, or a last Will and testament is a legal document that is designed to describe your wishes about how you would like your wealth, including property and other assets to be distributed after your passing. You are able to be as detailed as you wish in relation to specific items and requests.
You are also able to name guardians for your children, dependents, or pets when you prepare a Will and provide guidance on your desires for your funeral.
The above may sound somewhat morbid but by writing a Will, you can ensure that your family is not subject to the rules of intestacy or other legalities during a very emotional time.
Reasons to make a Will:
- Your Wishes Honoured
To ensure that your wishes are honoured. Your Will allows you to decide on who will benefit and how, and enable you to choose your funeral plans and list any specific requests such as cremation or burial.
- Provide for your children:
Your Will can be used to make plans which will allow you to provide for your children’s future financially. One option is to create a trust for your children so you can retain control over when they will receive their money.
You can also nominate someone to be a guardian for your children who will be under 18 at the time of the Will being enacted.
- Tax Planning and Efficiency:
Making a Will allows you to consider tax planning strategies to minimise inheritance tax (IHT) liability. Through proper estate planning, you can take advantage of available exemptions, reliefs, and tax-efficient structures to maximise the value passed on to your beneficiaries. Seeking advice from a qualified professional can help you navigate the tax landscape and optimise the distribution of your assets.
- Reduce the chances of family disputes
Without a Will, disputes among family members regarding the distribution of your assets can be more likely. This can lead to strained relationships, lengthy legal battles, and financial losses. By making a Will and clearly stating your wishes, you can minimise the potential for disputes and ensure your loved ones can focus on grieving and healing rather than fighting over the family silverware.
- To make gifts and donate to who you wish
If you would like to ensure that some of your assets are used to make gifts and donations to the people or causes you wish, these will need to be written in your Will. You can specify beneficiaries, allocate specific items or sums of money, and make provisions for charities or organisations you care about.
- Providing for your pets
You can write in your Will how you wish for your pet(s) to be cared for and by whom after your passing.
- Decide on an executor of your Will
Within your Will you can name an executor, this is a person who will be responsible for carrying out your wishes contained within the Will such as ensuring items or money are passed to the correct persons.
- Passing your business on
If you own a business then it is extremely important to consider making a Will. This is so you can clearly stipulate who you wish the business to pass to and take over ownership. Without a will detailing this, issues around ownership may arise and cause additional stress and confusion at a very emotional time.
- Protecting Unmarried Partners
Unmarried partners, including same-sex couples or those in long-term relationships, may face legal challenges without a Will. In the absence of a Will, the law does not automatically recognise unmarried partners as beneficiaries. By making a Will, you can ensure that your partner is provided for and can inherit from your estate, regardless of legal recognition.
- A Will can be amended at anytime
Your Will is not wrote in stone, you can amend your Will at any time during your life so do not worry if circumstances change, you can adapt your Wil to meet your new needs.
Making a Will is a vital step in securing your legacy and providing for your loved ones after your passing. By creating a Will, you ensure that your wishes are honoured, minimise family disputes, and protect unmarried partners. Additionally, it allows for tax planning, efficient administration, and avoids the complexities and limitations imposed by intestacy laws.
Consulting with a professional specialising in Wills and estate planning can help you navigate the process and ensure your intentions are legally documented. By taking the time to create a Will, you can have peace of mind knowing that your loved ones will be cared for and your legacy will be safeguarded.
If you would like to discuss the making of a Will or to review and amend a current one, please do get in touch and we will be happy to help you.
Liam Winstanley is a Chartered Financial Planner and Independent Financial Advisor. He has worked in financial services for well over two decades, specialising in wealth management and financial planning including things like pensions, investments, retirement planning, financial protection and estate plans.
Liam is the Director of Danbro Financial Planning and is passionate about delivering the very highest standards in service, ethics and professionalism within the financial sector.
Away from Danbro, Liam is an avid long-distance runner and also turns out for his local cricket side, Brinscall CC. He lives in Lancashire with his wife and son.