Mortgages.scot

Whilst I usually prefer to stay away from posting about events at the moment on this blog, I felt it warranted on this occasion. The Bank of England has increased interest rates for the 3rd time in 4 months. Until November 2021 the rate was 0.10%. Today it is 0.75%.

Analyists View

Analysts being analysts don't always agree. However, the general consensus at this time amongst most is that more is to come. By this time next year, the expectation is that the rate will have increased to at least 2% with some predicting up to 2.5% by the end of 2023. The last time rates were as high as 2% was in 2008.

The message is clear, worse is to come and it's is not going to be a short event. You can keep up to date with current and historic rates here.

Affect on Mortgage Affordability

If rates do increase as predicted then it will be a disaster for mortgage applicants. As a result of affordability rules, all lenders have to test borrowers' ability to meet affordability if the rates were higher than they are now. Currently, that is 3% above a lender's standard variable rate in most cases.

The average affordability rate across a range of lenders today is about 6.5%, so no matter how much lower the actual rate is, borrowers must demonstrate they could afford the payments in the rate was as high as 6.5%. Add a further 2% to make it 8.5% and many will not be able to borrow, or at least less than they could today.

There is some change in progress, the Bank of England is considering changes to this affordability test. See here. But that may come too late for many.

Review your mortgage now if you can

If you are on a variable rate or coming to the end of a fixed, capped, or other special deal with your current lender, you should look at what options you have to take out a new deal that provides some certainty for a period of time whilst this difficult period rumbles on.