The jump in inflation announced last week by the Office for National Statistics (ONS) – from 10.1% in January to 10.4% in February – was unexpected.
Many had predicted January’s figure would be a peak but the rise gave the Bank of England, responsible for setting the base rate, a late nudge and as a result, interest rates have been increased from 4% to 4.25%. So what does this mean for mortgage borrowers and renters?
The 1.6 million people on tracker and variable mortgage deals will likely be hit with the increase on their next monthly repayment. But for the vast majority of homeowners who have a fixed rate mortgage, the amount they pay remains the same for the duration of their contract, typically two or five years.
However, ONS data shows the number of fixed rate mortgage deals coming to an end this year will peak in the next few months at 371,000 –and higher rates will be waiting when it’s time to renew.
Since former Prime Minister Liz Truss’s controversial mini Budget last September, it’s been a tumultuous time to secure a mortgage. Which? has been tracking how rates are changing for home movers and first-time buyers. In the immediate aftermath, more than 1,000 deals were removed from the market, only to come back at much higher rates. Since then, they’ve dropped slightly but still remain high.
For example, the average five-year fix this month dipped below 5% to 4.97% for the first time since last September, but back then the average was 4.75%. If you don’t switch when your fixed term comes to an end, you’ll be moved on to your lender’s standard variable rate – now an average 7.12% – which will leave you vulnerable to further base rate rises.
You can use Which? Money’s mortgage calculator to see how your current payments could change if you had to pay a higher rate. If you’re concerned about how you will make repayments in light of the latest rate rise, then contact your lender who might be able to offer support measures such as temporarily reducing payments or extending the term of your mortgage. There’s more help in the Which? guide on what to do if you can’t pay your mortgage.
With buy-to-let mortgages, at the beginning of this month the average fixed rate deal was 5.78%, says Moneyfacts. The average was 3.28% 12 months ago. Also squeezed by forthcoming capital gains tax changes and new energy-efficiency requirements, many buy-to-let landlords are either selling up or passing on those increased costs to renters.
If you’ve tried to rent a property recently, you’ll nod in solemn agreement with ONS figures last week that found that the amount private renters are paying increased by nearly 5% in the 12 months to February. Demand is vastly outstripping supply, too, which is making an already difficult task almost impossible.
If you are renting but worried about finances, then talk straight away to your landlord, or to the letting agent if you rent through an agency, to see if you can work out a new payment plan. Check out the free Which? guide on what to do if you are struggling with your rent.
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