Rising Interest Rates and UK Mortgages – Is it a Good Time to Buy or Sell?

wooden arrow with wooden blocks gradually increasing

Both mortgage holders and current house hunters will be impacted by the Bank of England’s March decision to further raise the interest rate to 0.75%. The decision was made in attempt to tackle rising inflation in the UK – but what exactly does this mean for your mortgage, and is it still a good time to buy a home?

How will my current mortgage be affected?

This depends on what type of mortgage you currently have. If you are on a variable rate mortgage, you will see your monthly repayments rise.

On a tracker mortgage directly following the base rate, or if your rates are explicitly linked to the base rate, the interest rate will rise by 0.25%. This means that that an additional £18 a month will be added to a mortgage of £150,000 arranged over 20 years.

If you are on a standard variable rate, things are less straightforward as lenders can modify them at their discretion. However, leading brokers say that there is no reason for mortgage lenders to not pass the full increase on to borrowers – so it is best to prepare for an increase in line with the base rate.

For those on fixed-rate mortgages, repayments won’t change. This is good news for people who have taken out a mortgage in the past three years, with 96% of new borrowers taking advantage of historically low interest rates and locking them in for the near future.

Do Rising Rates Make It a Bad Time to Purchase?

Rising rates also stand to affect those looking to take on new mortgages, with some commentators thinking that the still historically low rates will soon be coming to an end.

Andrew Wishart, a senior property economist at Capital Economics expects that mortgage availability will fall back as lenders increase borrowing rates in line with the increases in the bank rate. They are also predicting a sharp rise in mortgage rates over the next year, potentially doubling the average rate on new mortgages from November 2021’s low of 1.5% to 3.0% in 2023.

While this seems negative for current house hunters, it doesn’t necessarily make it a bad time to purchase, however this is dependent on your personal circumstances.

If you have stable income and there is enough slack in your budget to accommodate an increase in mortgage payments and cost of living – there is no reason to delay.

The same applies to those who are currently renting, interest rates are rising to combat soaring inflation. So, it is worth remembering that your rent could also increase in the near future – In some scenarios it is often cheaper to purchase rather than to rent.

The current timing also offers borrowers a chance to get new (or re-mortgage to) competitive fixed rate mortgages that can shelter you from further increases to the base rate. If you do decide to take advantage of these rates, you should be prepared to move quickly with lenders withdrawing deals as they review their prices.

Is it a Good Time to Sell?

Unless you are taking your first step on to the property ladder, most people will have to sell in order to buy.

The rise in interest rates will lower the availability and increase the cost of mortgages, while rises in inflation are likely to increase the cost of living. Both factors are likely to put a damper on the housing market with reduced demand and house price growth slowing down.

With growth likely to slow down soon, selling now will give you the chance to lock in the gains you have made so far. However, the longer you wait to sell, the longer it may also take to find a buyer.

With that being said, the most important part of this decision is asking yourself – is now the right time to for me to sell?

You shouldn’t base your decision purely on what’s happening with interest rates and inflation.

If you are considering selling (and in an area we are based!), consider booking a free valuation with us. Our valuers are all property professionals with over 10 years’ experience in your area – they will be more than happy to answer any questions you have.

Peter Austin
Peter Austin

Peter is a writer and photographer with a great interest in property, design, and the economy.

2022 British Property Awards Gold Winner for Lincoln, Banner
2023 British Property Awards Gold Winner for Lincoln, Banner