Why are mortgage rates rising and what if I can't pay?

Why are mortgage rates rising and what if I can’t pay? The vital questions answered as homeowners face uncertain future

Why are mortgage rates rising?

Variable-rate mortgages typically increase in line with the Bank of England base rate, which has risen from a record low 0.1 per cent to 2.25 per cent. But with analysts now warning it could jump to as high as 6 per cent next spring to keep a lid on spiralling inflation, lenders are also frantically repricing their fixed-rate deals.

Will my repayments increase?

Around 2million borrowers on variable deals will see almost immediate increases to their bills when the Bank’s base rate rises. Anyone locked into a fixed-rate deal will be protected from hikes until their term ends. But 1.8million borrowers have fixed deals due to expire before the end of 2023 and will face big bill increases when they remortgage.

Around 2million borrowers on variable deals will see almost immediate increases to their bills when the Bank’s base rate rises

What should I do when my fixed deal ends?

Avoid rolling on to your lender’s standard variable rate, as these are typically much more expensive. Borrowers can secure a new fixed rate up to six months before their current offer ends, so it is sensible to contact a broker early to find out what offers are available.

Always shop around, as a different lender may be offering cheaper deals. A good broker will also help customers decide if it is worth paying an exit fee to remortgage early.

If the Bank of England’s base rate rises, the cost of borrowing rises for lenders, which means they pass on the increased cost to customers. But banks have historically been slow to pass on interest rises to savers

What if I can’t afford my new repayments?

Contact your lender as soon as possible to explain the situation. Banks and building societies are obliged to treat customers fairly and have been told by the Financial Conduct Authority watchdog to offer support to those in financial difficulty.

Depending on the customer’s circumstances, this could include moving them on to an interest-only loan or extending the term of the mortgage to reduce repayments.

Are banks ripping us off?

If the Bank of England’s base rate rises, the cost of borrowing rises for lenders, which means they pass on the increased cost to customers.

But banks have historically been slow to pass on interest rises to savers. And the banks’ interest margins – the difference between what they earn from borrowers and pay out on savings accounts – have already increased.

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