House buyers advised to look at fixed-rate mortgages
HOUSE buyers have been advised to look at fixing their mortgages for longer, as another possible rate rise from the Bank of England looms.
The Bank of England increased the base rate to 0.5% at the start of February in a bid to combat surging inflation across the UK.
The rise marks the first back-to-back increase since 2004, following the jump from 0.1% to 0.25% in December 2021. There are further expected increases in line with inflation, with the next Monetary Policy Committee (MPC) meeting as soon as 17 March.
Butterfield’s head of lending for the Channel Islands, Ed Jones, said that a second interest rate increase in three months might lead to a rise in those looking for longer-term fixed mortgages.
He added that the rising rate, combined with inflation, was leading islanders to re-evaluate their finances, including their mortgage.
‘As the financial landscape changes, so does the range of mortgage products on offer,’ he said.
‘Lenders will now be adjusting their rates in response to the Bank of England’s move, and this will have ramifications for borrowers.
'So far in 2022 we’ve already seen a greater demand for longer-term fixed mortgage products, such as 5 or 10-year fixed offers. These increased timescales offer long-term fixed affordability for what will be many clients’ most important asset.’
He noted that having a fixed deal helped people to plan their budget without surprises.
‘This can be especially important when the news is full of headlines about the more variable costs that effect the cost of living – such as energy bill,’ he said.
The Bank of England is forecasting that inflation will rise to 7.25% in April, signalling an anticipated increase in the cost of household bills, food, services and goods.
Adjusting the interest rate is one of the ways the Bank of England controls the UK economy and the recent increases are designed to encourage saving and help meet the bank’s target of having an inflation rate of 2% within two years.
‘In the grand scheme of things, interest rates are still relatively low, so now may be a good time to look at your current mortgage and review your options,' Mr Jones added.
He said that two-thirds of Butterfield clients were favouring fixed over base rate trackers, as they anticipate further increases in the base rate over the course of 2022.
