Borrowers In a fix

Borrowers in a Fix

by Neil Stanford, Mortgage Manager

With nearly three decades of experience, Gower's Mortgage Manager Neil Stanford has seen plenty of change. However, the recent surge in mortgage rates, as many fixed-rate deals approach their expiry date, has set a new benchmark for him.  Here, Neil reviews the causes and potential strategies to help homeowners successfully steer through these rough financial waters.

The headlines

The Bank of England's base rate has risen from just 0.1% p.a. all the way up to 5% p.a. in under 2 years. This spike means that fixed rates, which were readily available at less than 2% p.a. in the very recent past, are now at a staggering 6% -7% p.a.  Based on these figures, homeowners with a typical Guernsey mortgage of £350,000, could see their re-payments climb by a staggering £800 to £1000 per month.

The propelling forces

The current upturn in mortgage rates can be attributed to several global economic factors. Perhaps the most significant is inflation, which refers to the general increase in prices of goods and services over time. Inflation erodes the purchasing power of money, leading to a decrease in its value. To counteract its effects, central banks have employed specific policies, such as raising interest rates, which have led directly to the sharp increase in mortgage rates.

The low interest rate environment that prevailed for over a decade saw many homeowners securing cheap fixed-rate deals. The imminent expiry of these contracts in an era of higher rates is, understandably, triggering alarm bells. The prospect of a substantial monthly payment hike is causing concern for many.

Speak to a broker

As the mortgage landscape continues to shift at a staggering pace, lenders too are evolving their offerings, adding complexity and giving borrowers even more information to digest. This makes the independent advice of a mortgage broker more important than ever.

At Gower, we are continuously monitoring the market shifts and can help you make sense of the available options. Should you re-fix? How long you should re-fix for? Would a tracker rate be more appropriate? Every individual’s circumstances will differ and no two cases will be the same.

As independent mortgage brokers, our job is to clearly explain the options so that you can make a decision that feels right for you.  Because Gower is independent and offers an unbiased perspective, we can monitor what is available from the whole market rather than just what your current lender is willing to offer. If you are concerned that your current mortgage rate is about to expire, we would be happy to discuss any potential alternatives and bring you up-to-speed with the latest offers.

Looking to the future

While the recent headlines may seem daunting, it's important to remember that economies and markets are generally cyclical.  Whilst it is impossible to forecast whether this current upswing in rates is a blip in the long-term trend, or whether they’re to stay, it is essential that borrowers make the most informed decision about what rate to choose, when they need to. It is always prudent to prepare for any situation, and Gower is here to guide you every step of the way. If you're concerned about your existing fixed rate deal nearing its end, please contact us and our mortgage team would be happy to help. In the meantime, here’s hoping for less turbulence and more stability in the years to come.