Why Are Mortgage Rates Increasing Again?

If you have been keeping an eye on the mortgage market, you may have noticed that borrowing costs have started to move upwards again.

For borrowers who had been expecting mortgage rates to gradually settle or fall, this may come as a surprise. It can also leave you wondering whether now is the right time to buy a home, remortgage or secure a new fixed-rate deal.

The good news is that increasing mortgage rates do not automatically mean you need to put your plans on hold. However, they do make it more important to understand what is happening in the market and how it could affect your own circumstances.

Why are mortgage rates increasing?

One of the most important things to understand is that mortgage rates do not simply move in line with the Bank of England’s Bank Rate.

For borrowers with a fixed-rate mortgage, lenders also take into account the cost of raising money in the financial markets. One important influence is swap rates, which reflect the market’s expectations around future interest rates and the cost of funding over a particular period.

When these costs increase, lenders can adjust the rates they offer on new fixed-rate mortgages.

Recent volatility in financial markets, together with renewed concerns around inflation and the future path of interest rates, has contributed to higher funding costs. As a result, some lenders have been increasing their mortgage pricing.

This is why mortgage rates can increase even when there has not been a corresponding increase in the Bank of England’s Bank Rate.

For borrowers, the important point is that mortgage pricing can change quickly. A mortgage deal available today may not necessarily be available at the same rate in a few weeks’ time.

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What does this mean if you’re planning to buy a home?

If you are looking to buy, increasing mortgage rates can affect how much you can borrow and what your monthly payments could look like.

It is worth remembering that the interest rate is only one part of the affordability picture. Your income, outgoings, deposit, credit history, mortgage term and the amount you want to borrow will all influence whether a particular mortgage is affordable for you.

For example, a higher rate could mean that you need to consider a slightly lower purchase price, a larger deposit or a different mortgage term. That does not necessarily mean you cannot buy. It may simply mean that your original budget needs to be reviewed.

It can also be tempting to wait for mortgage rates to fall before making a decision. However, nobody can say with certainty what mortgage rates will do next.

Instead of trying to time the market, it can be more useful to understand what is affordable for you today and what your options are.

What if you’re coming to the end of your fixed-rate mortgage?

For existing homeowners, the impact of increasing rates can feel more immediate.

If you are currently on a fixed-rate mortgage, you may have been protected from recent movements in mortgage pricing. But when your fixed period comes to an end, you will need to consider what happens next.

If you simply allow your existing deal to expire without arranging a new mortgage, you could move onto your lender’s standard variable rate. This may be higher than the rate you have been paying. This is why it is worth starting the remortgage process well before your current deal ends.

Planning ahead gives you time to understand the options available to you and consider whether it makes sense to stay with your current lender or look elsewhere.

Your circumstances may also have changed since you last arranged your mortgage. Your income, property value, outstanding mortgage balance or financial commitments could all be different. A review can therefore be useful even if you have remortgaged before.

Should you wait for mortgage rates to come back down?

This is one of the biggest questions you’re likely to be asking. Unfortunately, there is no reliable way to know exactly where mortgage rates will be in the future.

Rates are influenced by a wide range of economic and financial factors, many of which are outside your control. Waiting for a lower rate could pay off if borrowing costs fall, but it could also mean delaying your plans or finding that rates have moved in the opposite direction.

For this reason, it is usually more useful to consider whether a mortgage is affordable and appropriate for your circumstances, rather than trying to predict the perfect time to secure one.

If you are buying a property that meets your needs, can comfortably afford the associated costs, and have found a mortgage that works within your budget, increasing rates do not necessarily mean you should walk away.

Don’t focus solely on the headline rate

When mortgage rates are dominating the headlines, it is easy to focus on one number.

But the cheapest-looking mortgage rate is not necessarily the best option for every borrower. When thinking about your individual situation you should also consider factors such as:

• The length of the fixed or introductory period
• Arrangement or product fees
• Early repayment charges
• The mortgage term
• Whether overpayments are permitted
• The flexibility of the mortgage
• Your plans for the property
• What happens when the initial deal ends

For example, paying a slightly higher rate with a lower fee could potentially work out differently from choosing a lower rate with a significant upfront fee. Your circumstances and plans should therefore be considered alongside the rate itself.

Could increasing rates create opportunities for buyers?

It is also important to look beyond the mortgage headlines. Increasing borrowing costs can affect demand in the housing market, and this can create a different dynamic between buyers and sellers.

If there are fewer buyers competing for properties, some sellers may be more open to negotiation. That could create opportunities for buyers who are financially prepared and able to proceed.

A lower purchase price does not completely offset the impact of higher mortgage rates, but it demonstrates why the wider housing market matters too. The cost of buying a home is about more than the mortgage rate alone.

What should you do if you’re concerned about increasing mortgage rates?

If you’re thinking about buying or remortgaging, it’s understandable to feel a little uncertain when you see mortgage rates increasing.

Rather than trying to predict what the market will do next, it can help to take a step back and look at your own circumstances. How much could you comfortably afford each month? Has anything changed since you last arranged your mortgage? And are there different options that could make your plans more manageable?

This is where speaking to a mortgage broker can be valuable. Experienced brokers – like the team at Exe Mortgages – can look beyond the headlines, draw on their knowledge of the market and help you understand how the available options could fit your circumstances. They can also talk you through the different types of mortgages, terms and rates available, rather than leaving you to navigate a changing market on your own.

If you’re coming to the end of a fixed-rate deal, it’s worth starting the conversation early. Having more time to explore your options means you’re less likely to feel rushed into a decision. And if you’re planning to buy, understanding how much you may be able to borrow before you start seriously viewing properties can help you set a realistic budget from the outset.

Mortgage rates will continue to move as the market changes, but you don’t have to navigate those changes alone. A broker’s experience can help you understand what’s happening, what your options are and what could work for you.

The mortgage market can change. Your plans don’t necessarily have to.

Increasing mortgage rates can understandably create uncertainty, particularly if you have become used to seeing borrowing costs move in a different direction. But a changing mortgage market does not automatically mean you need to delay your plans.

The right mortgage will depend on your circumstances, your finances and what you want to achieve. Rather than trying to predict exactly what rates will do next, focus on understanding what is available, what you can afford and which options could work for you.

If you are unsure about your next step, speaking to Exe Mortgages can help you understand the options available and how changes in mortgage pricing could affect you.