01 Aug 2022
What impact are the interest rate hikes having on your mortgage?
There is no escaping the fact, July has continued to be a month of interest rate movements and price increases.
First time buyers that purchased a home anytime in the last ten years, probably haven’t experienced an interest rate hike environment. The next Bank of England meeting will be on 4th August and we are expecting an increase of a further 0.5%, the largest single increase since 1995. Understandably, all mortgage borrowers looking at either remortgaging or purchasing a new property right now, will have questions around affordability and the impact of these future rises.
Our team have been busy helping clients discover the actual impact these changes in interest rates are having on their current mortgage whilst helping clients and their families forward plan their finances in this new higher interest rate environment we are now in.
Understanding your budget and the affordability of your mortgage is pivotal prior to our advisors making a mortgage recommendation. We have access to lenders that will accept virtually all forms of income which help you prove affordability. This could be earned income from second/third jobs or side hustles to unearned income such as maintenance payments, lodger/rental/investment income, or benefits such as Disability/Carers allowance, child benefit etc.
For Limited Company Directors we can assess your income on money you keep in the business (in the form of undrawn net profits) not just money you take out of the business such as salaries and dividend payments.
Getting your mortgage term right
A mortgage term is the number of years you have to repay your mortgage. Lenders offer mortgage terms of up to 40 years.
The longer the mortgage term the lower the monthly payment but importantly, the longer the term, the more interest you are required to pay. When your advisor recommends a mortgage term, they are considering your current affordability but also future income potential. Just because you take a 40 year term at the beginning, it doesn’t mean you need to keep your mortgage for this length of time. We often review a clients mortgage after a recommend fixed rate period, be that two, three of five years.
We work with our clients to find a happy medium between affordability and paying the least amount of interest.
Let our advisors help you determine the best mortgage term that achieves your financial goals.
As interest rates are increasing, clients with money in the bank are now considering whether to make lump sum reductions to their mortgages. This is with the view that a smaller mortgage will reduce their monthly payments and become more affordable. There are other ways in which you can utilise your savings to without committing them to paying down your mortgage.