As the cost of living crisis continues, the Office for National Statistics (ONS) reported that the consumer price index in the UK had reached 10.1% in July, setting a new landmark in the last 40 years.
It should be noted that the higher the interest rate, the higher the burden of mortgage rates, if you wish to purchase a property or repay a mortgage. Inflation drives the devaluation of the pound, which means that purchasing power decreases significantly as inflation increases. Most businesses are run for profit, so the management team will increase the cost to generate some revenue.
What can be done, if rates reach 4%
Private Finance technical director Chris Sykes says: “Two ways to reduce monthly payments are through extending the mortgage term or by putting some of the debt on interest only. I am generally encouraging clients to, if they can, just pay the higher rates and not take any actions to lower the payments as inevitably this means paying more interest over the term (unless you are making overpayments).”
What does history tell us?
We have become accustomed to mortgage rates being low - however, if you look at figures from two decades ago, now the tide has positively turned. For comparison, the average fixed rate for 5 years in 2000 was a momentous 6.94%. In 2022, it is 2.99%.
Of course, for some people, this could initiate a shock. This is particularly true when, perhaps, they’d like to treat themselves to their favourite cocktail, in conjunction with paying for extreme energy bills.
A little tip: try switching to a fixed rate, as it would allow protection against unexpected surprises by the Bank of England…