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According to mortgage experts, there will be a gradual increase in cost for home loans despite rising costs elsewhere.

The Bank of England will be the focus of all eyes next week as they consider raising the base rate.

After some time of high competition and low borrowing costs, some lenders for mortgages have slightly raised interest rates.

Official forecasters predict that the largest rise in mortgage rates will occur in 2023.

According to the Office for Budget Responsibility (OBR), the official and independent forecaster of the government, inflation (which measures cost-of-living) is likely to accelerate to 4% in the next year.

The Bank rate would rise next year, as well as the following year, since it is currently at 0.1%. According to it, the Bank Rate would likely not exceed the 1% mark. However, it might rise up to 3.5% if inflation goes above 5%.

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Such an increase would typically feed through to householder’s interest rates. This means that mortgage costs would go up, but savings could see better returns.

Mark Harris, the chief executive at SPF Private Clients, a mortgage broker, stated that mortgage rates are trending upwards regardless of whether the base rate goes up or not.

Simon Gammon is Knight Frank Finance’s managing partner. He stated: “There are many people talking about interest rates rising and there are all indications that the best products are being borrowed.”

Although any increases are unlikely to be rapid and measured, these are the lowest mortgage prices likely to remain for a while.

  • 74% mortgage holders have fixed-rate loans. This means that they will only experience a decrease in their monthly payments after their current term expires.
  • 8.500.000 homeowners remain on tracker deals. These usually follow changes in the Bankrate
  • The remaining 1.1 million have standard variable rates. They are often automatically moved towards the end of their fixed term. Their lender can change the rate they pay at any moment, and this is usually the case when the Bank rate has been altered.
  • Were there to be a 0.25 percentage point rise in rates, this would translate to approximately an additional £26 per month mortgage payment on average for a tracker rate customer and £16 for the typical borrower on an SVR

Source: UK Finance

In recent months, the competition in the mortgage market was intense.

These have resulted historically low mortgage interest rates. The Bank of England has released new figures that show the average interest rate paid for newly drawn mortgages decreased to 1.788% as of September.

Rachel Springall from financial information company Moneyfacts says that first-time home buyers are now able to make a larger deposit than they used to.

She claimed that there was still plenty of competition despite “murmurings about a rise in the base rate”.

She said that “aside from headline-grabbing rates, we have seen notable improvements in deals for people with low deposits this month. Last year, borrowers might have had difficulty finding a deal because lenders pulled them as a result of coronavirus.”

Andrew Montlake is Coreco’s managing director. He stated that although it looks like the age of low interest rates may be over, we need to remember that overall we remain in a low-priced environment.

The Bank of England is weighing up whether it should raise its interest rate. This means that there’s a whole new generation of borrowers, who haven’t seen any rate increases in their lives.

How would rate increases affect you if you have a tracker or standard mortgage at variable rates? Send an email [email protected].

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