Martin Lewis warned tonight the door “may be about to shut on uber cheap mortgages” as the Bank of England is expected to raise rates. The Money Saving Expert issued a “clarion call” for mortgage holders to act as interest rate rises are “coming, and coming soon.”
Martin warned many may look back and say to themselves “if only I sorted my mortgage in October.”
Martin continued by highlighting how many cheap deals there are for mortgages today, with some even being below one percent. With a possible rate hike coming, affected homeowners will likely want to act on these deals.
Martin said: “The market consensus predicts UK interest rates are going to rise, they think that will happen in the meeting in two weeks time.
“It will be the first rise in three years from 0.1 percent to 0.25 percent in February, they’re predicting it goes up to half a percent, and by the end of next year it will be at three quarters of a percent.”
Recently, Laura Suter, the head of personal finance at AJ Bell, also warned of potential rate rises.
“It’s 19 months since the Bank of England slashed interest rates to their lowest ever, in a bid to prop up the economy during the pandemic, but it seems many are calling time on rock-bottom rates,” she said.
“It’s now widely expected by economists and investors that a rate rise is on the horizon, with expectations of an increase from 0.1 percent to 0.25 percent this year and another nudge up to 0.5 percent next year.
“A rise to 0.25 percent will only take us back to where we were last March, when rates were cut in the Bank of England’s unscheduled move.
“But for many households it’s the worst possible timing as any increase will come hand-in-hand with increasing household bills and a squeeze on finances this winter. While rates will edge up, rather than leap overnight, any shift higher may be the match in the powder barrel for some families.”
Ms Suter continued by examining what could happen with mortgages: “Mortgages rates have been at rock-bottom lows for some time now, and many homeowners have never known an environment of higher interest rates. While rates won’t sky-rocket, homeowners need to be prepared for an edging up of their costs.
“Mortgage providers don’t hang around when it comes to passing on rate rises, so anyone on a tracker deal will see their costs go up immediately. If 0.5 percentage points is added to mortgage interest it adds about £50 a month to the cost of a £200,000, 25-year mortgage, or around £120 a month extra to a £450,000, 25-year mortgage.”
While Ms Suter said first time buyers would likely be hit the hardest by these changes, mortgage holders should take steps to avoid financial damage.
“Fixing might be a good option for homeowners on a tracker deal who think rates will only continue to increase,” she said.
Ms Suter concluded: “Anyone in this position should get a move on, as if a rate rise becomes more certain we’ll start to see mortgage rates edging up ahead of any announcement.
“Anyone on a fixed-rate deal will be protected from any increases. However, those nearing the end of their deal may find rates have got much higher when they come to re-mortgage. One helping hand for homeowners is that property prices have increased, which means when they come to re-mortgage this increase coupled with their mortgage repayments mean their loan-to-value should have improved, and so they can access better rates.
“Some people may have been using the money they have saved from the current low rates, and so lower monthly repayment amounts, to overpay on their mortgage.
“Lots of people have also saved money in lockdown and may have been wondering how to spend that, but with mortgage rates having been so low there hasn’t been much incentive to use spare cash to pay off your mortgage debt. However, if rates are rising that may tip the scales in favour of paying down the loan.”