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

Why are interest rates rising so quickly and what can I do about it?

Doesn’t it feel like there’s always something going wrong? Since the recession in 2008, the Bank of England Base rate dropped from 5% to 0.1% in March 2021. Things could be worse, as the Bank of England base rate peaked at 17% in November 1979 under Thatcher. In June, the base rate rose to 1.25%. The highest it has been since 2009. With the cost of living crisis looking like it will rumble on for years, petrol prices, gas and electricity prices and the cost of food continuing to rise, it isn’t easy watching mortgages becoming more and more expensive.

The Bank of England keep a track of mortgage rates and the average quoted rate for a two-year fixed-rate mortgage with a 75 per cent loan to value ratio increased to 2.63 per cent in May, from a low of 1.2 per cent eight months earlier — the fastest increase over such a period since records began in 1995.

We wanted to put some examples together to show what this looks like and what you can do to reduce the risk of seeing your mortgage shoot up in cost.

Back in October 2021, we had a new client come to us who wanted to raise money on their home to complete some home improvements. A really standard scenario that we see all the time. Santander was happy to help and offered a 5-year fixed rate of 0.99% with a fee of £749, a free valuation and £250 cashback to cover the cost of the legal work. This particular product was available up to 60% Loan to Value (LTV). If we look at Santander’s rates today, they would be looking at a rate of 3.19%, with a fee of £999, but still with a free valuation and £250 cashback to cover the cost of the legal work. This product is available to 75% as Santander doesn’t currently have any products at 60% LTV.

Why are we seeing the lenders increase their rates?

With Covid continuing to rear its ugly head, the lenders are still not running at full capacity. NatWest are currently taking 17 working days for underwriting assessment. What this means is that when your application is passed to an underwriter, they’re not going to look at it for the best part of 4 weeks. To reduce their workload, they increase their rates so that people don’t use them. This then means that another lender will unknowingly have the lowest rate on the market and they’ll get swamped by applications and their service will suffer and they then increase their rates to reduce demand. It’s a vicious circle!

The lenders also set aside a tranche of money per product. They may assign £10,000,000 to one product, and once that has been exhausted, they remove the product. With every man and his dog trying to secure a low fixed rate before they rise any further, products are just not hanging around.

Last week I spoke to a client for the first time and the leading rate at the time was a 5-year fixed rate of 2.64% with a £999 fee, a free valuation and £250 cashback to cover the cost of the legal work. By the time they had sent in their documentation and I was able to make a formal recommendation Santander had the best 5-year fixed rate for them at 2.99%, no fee and a free valuation and £250 cashback to cover the cost of the legal work. By the time the client had come back to me to say they were ready to proceed, Santander had increased their rates and Nationwide were now their best option at 3.49%, no fee and a free valuation and £500 cashback to cover the cost of the legal work. This happened over 6 working days!

What can I do to avoid having this happen to me?

The best thing you can do is be prepared and act early. You can secure a rate up to 6 months in advance of your fixed-rate ending. Rates are going to continue to rise, so the sooner we can secure a fixed rate for you, the better. It’s also really helpful if you have all of your documentation in order. Have your latest payslips available. If you’re self-employed, make sure your accounts are signed and tax calculations and tax year overviews are up to date. We’ve had cases with Barclays where a client hasn’t provided the necessary documentation in time and without warning, they have cancelled the client’s application. In this instance, the client had applied for a Buy to Let 5-year fixed rate at 2.35%, with a fee of £1,795, a free valuation and £500 cashback to cover the cost of the legal work. The rate is now at 2.85%, with the same fees and cashback.

Next Steps

If you want to secure a fixed rate before rates rise even higher, the best thing to do is to book an appointment and we can run you through your options.

Do give us a call on 0117 332 5197. Our initial conversations usually last around 15 minutes.

Alternatively, you can email enquiry@lloydwellsmortgages.co.uk and let us know how we can help you.

We will discuss:

  • How much you can borrow
  • What that will cost
  • What fees can you expect
  • How Lloyd Wells Mortgages work
  • What insurances you will need
  • What documentation you will need to provide
  • Next steps

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