Martin Lewis explained how homeowners who get a cheap deal may find they can’t repair at the same rate because the Bank of England has hiked interest rates
Martin Lewis has warned that households are facing a “time bomb” of more expensive mortgage rates due to rising interest rates.
The MoneySavingExpert explained how homeowners who made a bargain offer may find they can’t repair it for the same price.
This is because the Bank of England has raised its base rate, and this is used by lenders to determine how much people will be charged for borrowing. Interest rates are currently fixed at 1%.
If you have a tracker mortgage and interest rates go up, your interest rates will go up in line with that base rate.
For those who have a Standard Adjustable Rate (SVR) mortgage, it’s up to your mortgage provider to decide whether to pass the increase on to their customers.
Your repayments are likely to increase as most major banks and lenders hiked interest rates following the latest BoE announcement.
Martin also warned that rising costs are leaving savers with less money than before – and this means that affordability tests will be harder to pass.
When you apply for a mortgage, a lender examines your income and expenses to assess whether you can afford your repayments.
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Martin told viewers of his Martin Lewis Money Show Live broadcast on ITV: “To get a mortgage you have to pass a credit check and an affordability check. An affordability check will determine if you have the space to pay that mortgage.” .
“But we are in the middle of a livelihood crisis. Everyone has less space than before because other costs have risen.
“So my big fear is that interest rates have gone up, but more people will not be accepted when applying for a mortgage because more will fail the affordability tests.
“And that leaves us with a ticking time bomb because most people are going for cheap fixes and expecting to go back to the cheap fix and it’s going to be a lot higher and they might not be able to get it and so that’s a real problem. “
If you have a fixed-rate mortgage, your interest rates won’t change – although Martin explained that if your current mortgage expires, you might want to get a bargain deal now.
For those who are really concerned about paying more, he suggested doing the best “fix it and fix it longer” so that you can have more peace of mind for a longer period of time.
“When you reach the end of your rate, you need to prepare in advance,” Martin explained.
“You might even want to pay a booking fee to get a cheap mortgage if things get more expensive, and if they don’t you can get a cheaper one elsewhere.
“It’s like an insurance policy where you lose a few hundred pounds but have a cheap mortgage. Contact a mortgage broker for help.
“When things are going up and you want security and you can get a cheap five-year contract, a five-year contract gives you security.
“I can’t promise it will have been cheapest in hindsight, but if you want peace of mind in an uncertain world — and boy are we in an uncertain world — then fix and fix longer.”
https://www.mirror.co.uk/money/martin-lewis-warns-time-bomb-27058177 Martin Lewis warns of the 'time bomb' of rising prices for anyone with a mortgage