Mortgage rates can fluctuate depending on the UK interest rates. Are we likely to see an increase in 2022?
We take a look at what has happened to interest rates over the last decade and what experts are predicting for the future.
What are mortgage rates like currently?
Interest rates in the UK are currently at an all-time low of just 0.1%. However these could be set to rise in 2022. Mortgage rates tend to be slightly higher than the base rate, however they are still at record low levels.
Why are mortgage rates so low?
UK interest rates were initially dropped back in 2008 in the aftermath of the financial crash. They were reduced from 5% to just 0.5% in an effort to help the economy recover. The rates stayed pretty low over the next decade. Whilst the economy recovered, uncertainty over Brexit led to them being reduced again to 0.25%. Rates were slowly starting to increase again having been raised to 0.75%. Then the global pandemic came along and rates were once again slashed – this time to the record low of 0.1%.
That must mean the rates can’t get any lower?
The economy is starting to show signs of recovery, despite the fact that the coronavirus pandemic is far from over. Predictions are that interest rates are likely to reach a turning point in the New Year. This could see them bounce back up again over the next 12 months.
What causes interest rates to rise?
There is currently rising inflation in the UK. This is partly due to the surge in the cost of living, from expensive groceries to rising fuel bills and energy prices. Whenever there is a rise in inflation, the Bank of England uses increased interest rates to try to keep it down. With these rising costs continuing over the course of next year, we are likely to see the Bank of England raise their interest rates above the current 0.1%.
If interest rates rise, what will happen to mortgage rates?
If the Bank of England base rate rises, then it is likely that mortgage rates will follow. Mortgage lenders will be paying close attention to any Bank of England activity, and will look at their own product rates accordingly.
Tracker mortgages and variable mortgages follow the Bank of England base rate, so if that goes up, then so will your mortgage. This could mean an increase in your monthly repayments.
If you are currently on a fixed-rate mortgage, you’ll pay the same amount until your deal comes to an end.
If you are currently thinking of buying a home in the near future or are due to remortgage any time soon, you may want to consider a fixed-term mortgage.
Taking out a fixed mortgage before any interest rate rises is a good way to lock in the low rates while you can.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE