The latest inflation figures released on 20 July show that prices in the UK are rising at 9.4%, the fastest rate for 40 years. The question many contractors with mortgages will now be asking is: where will interest rates be going next? The answer could be that rates will be jumping sharply upwards next month, having an immediate impact on the mortgage market.
The Governor of the Bank of England Andrew Bailey has given a strong hint that interest rates could rise by as much 0.5% next month, stating such an increase is “on the table”.
With the annual increase in the cost of living fast approaching 10%, and forecast to go higher still later this year, Bailey has admitted that the Bank’s Monetary Policy Committee (MPC) is reconsidering its policy of increasing rates by quarter points alone, and may now extend rates by half a percentage point – the steepest increase in 27 years.
The Governor was keen to point out the bank determination to bring inflation under control and back to the 2% government target.
“Let me be quite clear: there are no ifs or buts in our commitment to the 2% inflation target. That’s our job, and that’s what we will do,”
“From the perspective of monetary policy, these times are the largest challenge to the monetary policy regime of inflation targeting that we have seen in the quarter century since the MPC was created in 1997,” Mr Bailey added.
The Bank of England MPC is due to meet and announce its next decision on interest rates on 4th August.
To give some perspective, a household with a mortgage of £200,000 mortgage at 2.78% will pay around £926 per month. Assuming that rate increased to 5.0%, their monthly payments would rise by £244 to £1,170 – an increase of 26.3%. Many contractors ill feel that it is time to take action, preferably before the next rise is announced.
Andy McBride, Managing Director at Cleerly had this advice:
“Ultimately there are two things borrowers are able to do to mitigate against increasing interest rates. One is to lock-in at the current rate by taking out a fixed-rate mortgage as soon as possible. This will ensure that, regardless of interest rate movements, the rate will remain unchanged for the term of the deal.”
“Overpayments are another option that could in some cases reduce the loan to value sufficiently to qualify for improved rates when remortgaging or purchasing.”
Regardless of your current situation, it would be sensible to contact a specialist contractor mortgage broker to conduct a mortgage health check. This will ensure you are on the best product available and you know exactly when you can start looking at the options available.
At Professional Contractor Mortgages, our expertise is in understanding your specific set of circumstances. We then apply our experience in the contractor mortgage market, and with the benefit of our long-standing relationships with mortgage lenders, we find you the most cost-effective and solution for your individual needs.
Contractors are often turned away by lenders or brokers as they don’t fit the conventional tick boxes on a mortgage application, so even if you have been told you can’t get a mortgage as a professional contractor, we can still assist. Call our mortgage experts on 02394 212912 today – and protect yourself from rising mortgage costs.