How Unchanged Interest Rates Impact your Financial Plans

News on Thursday April 9 that the Bank of England holds interest rate at their 16 year high of 5.25% came as little surprise.

Interest rates remained at their uncomfortably high level since August 2023 after the BoE spent much of the first half of last year raising them to combat double digit inflation.

But no change is not the same as no news. There could still be an impact on your finances.

What was behind the decision?

Financial markets expected a majority of the bank’s nine-member Monetary Policy Committee to want more evidence that inflation really is beaten.

Headline inflation in the U.K. is down at an annual rate of 3.2%, its lowest in two and a half years, but still stubbornly higher than the 2% target set by the government.

Higher interest rates cool the economy by making it more expensive to borrow. Businesses must pay more for the finance they need, slowing investment and development, and reducing spending. 

The monetary committee may need to ease off the rates to avoid recession, and put the economy back into growth, but they look unlikely to do so in the next few months.

The pain of high rates will not be eased yet – which may mean you need to look at ways to take the pressure off your finances now.

What does this mean for your money?

The problem with a bank base rate that remains high is that mortgages remain expensive; in some cases much more expensive than home buyers originally bargained for.

5.25% seems a long way from the 0.1% base rate that kept the economy afloat after the covid crisis. Some mortgage payments have doubled.

Coupled with the pressures on family budgets from the cost-of-living crisis, it means that many people are finding themselves in real difficulties.

Those who have been hanging on in hope of a rate cut have had their hopes dashed.

With the Bank of England holding the cost of borrowing, there is little motivation for lenders to cut their mortgage rates. The mortgage price war that benefited borrowers earlier this year appears to be over as wholesale funding costs – swap rates – rise and are being passed on to borrowers.

If you’re on a fixed-rate deal, your monthly payments won’t change until the end of your deal. And if you’re on a variable or tracker mortgage, this month’s Base Rate hold will mean your monthly payments remain the same.

But if you’re coming to the end of your fixed-rate mortgage soon, you’ve probably already started to think about the rate you’ll be offered on your next deal. Millions of homeowners will pay much more when they come to remortgage, and about 1.6 million fixed deals will expire in 2024.

What can you do if you can’t afford your mortgage?

A rate cut may happen soon. The Bank of England’s Monetary Policy Committee meets regularly and could make a decision next month – but history has shown that after interest rates have increased, they have remained flat before starting to come down. 

But if you can’t afford to carry on with your mortgage commitments now, you may not be able to wait, especially as any cut will probably be relatively small.

At Continuum, we may be able to help. We can search the market to find the most appropriate mortgage deal for you and look at potential ways to make it affordable. We may be able to extend the term to reduce your monthly repayments, or look at a different payment structure, such as going interest only to cut your costs.

If your mortgage is becoming a burden now, or your fixed rate coming to an end soon, call us today.

Bank of England expected to wait for more evidence that inflation is under control before rate cut (marketbeat.com)

https://professionalparaplanner.co.uk/1-6million-mortgages-to-end-in-2024-concerns-over-potential-missed-payments/

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage product and you should seek independent financial advice before embarking on any course of action.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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