Mortgage expert shares latest interest rate forecast and what it means for you | Personal Finance | Finance

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Rampant UK inflation rates have wreaked havoc in the mortgage market over the past year, with some homeowners reporting payment increases of up to 501 percent.

With analysts expecting the Base Rate to remain at 5.25 percent until mid-spring next year, many may be wondering what this could mean for their mortgage.

From Standard Variable Rates (SVR) to fixed deals, the current economic landscape will yield varying outcomes depending on the mortgage contract a person is tied into.

Amy Knight, personal finance expert at Nerdwallet UK, delved into the latest interest rate predictions and the implications this may have on different mortgage deals.

For those on an SVR, Ms Knight said: “Don’t expect it to drop ‘til the summer.”

Standard Variable Rate (SVR) mortgage forecast

For borrowers with a tracker or standard variable rate (SVR) mortgage, whose monthly payments are directly influenced by the Base Rate, it appears interest rates may have reached their peak.

The next Base Rate announcement will be held on December 14, but financial markets suggest it’s likely to stay where it is before potentially beginning to drop in May or June 2024.

Ms Knight said: “This means that whatever interest rate you paid on your mortgage in November, it’s likely you can budget for paying the same rate for the next six months or so.”

Fixed rate mortage forecast

Ms Knight noted there may be “some relief” for fixed-rate customers. She explained: “Since the end of July, the average cost of fixed-rate deals has generally been dropping, making a significant difference in the cost of repayments for borrowers who locked into a fixed rate four months ago compared with now.”

For example, homebuyers with a 40 percent deposit have seen the average rate on a two-year 60 percent LTV fixed-rate mortgage drop to 4.9 percent on November 28, from a peak of 6.38 percent on 25 July.

Ms Knight said: “This represents a saving of more than £133 per month on a £150,000 mortgage arranged over a 25-year term, or more than £3,200 over the two-year fixed-rate deal period.”

Mortgage payment support

Ms Knight said: “If you are struggling with the cost of repayments, talk to your lender about what they can do to help. Lenders are expected to support borrowers in financial difficulty.”

The support on offer could include budgeting tools, access to debt advice or mortgage forbearance, where a lender may allow people to pause their mortgage payments or pay less for a limited time.

However, Ms Knight noted: “While mortgage forbearance may offer short-term relief to help get your finances back on track, it can lead to your mortgage costing more in the long run and could dent your credit score.”

It’s also important to be aware that switching mid-deal is likely to incur fees and whilst it may also be possible to adjust the term of a loan to make repayments more manageable, people typically end up paying more interest overall.

Ms Knight said: “If you’re interested in remortgaging, changing provider or switching to a new deal, be sure to ask what the earliest date is you can get out of your current deal without incurring fees.

“You can set yourself calendar reminders to start comparing deals and may even be able to reserve a mortgage deal six months before the end of your current deal.”

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