Prepared for the storm

The current situation

Recently, the Bank of England raised the base interest rate by an additional 0.75% to reach 3% – the biggest jump in interest rate since 1989. There are concerns moving forward that this rate will continue to climb, with some suggesting it will reach 4.5%, and others predicting it will soar even higher to 6%.[i]

The average cost of a mortgage following this hike has risen by as much as £300 per month for households. Plus, the current turmoil and unease around mortgage rates has caused many mortgage suppliers to pull certain products from the market, in some cases leaving first time buyers with the necessity to find alternative, often more expensive, mortgage deals.

Worryingly, experts have raised fears that this price hike could push another 400,000 UK individuals into poverty, with many being unable to afford their mortgages among the other mounting costs of living.[ii]

But what’s causing this price hike?

The consequences of bad decisions

The interest rate is increasing simply in a response to the rising levels of inflation. The Bank of England has stated that raising interest rates is the best way to tackle this situation; a problem caused by both short- and long-term factors and current events. Liz Truss’ brief, yet destructive stint as Prime Minister and the disastrous Mini Budget are certainly to blame here, but war in Russia and the resulting rise in energy costs and food prices are also pushing inflation higher.

Unfortunately, wage growth isn’t following suit, and salaries aren’t matching inflation, leaving many out of pocket. In fact, the government has warned against companies raising wages as this may spur inflation to rise even further.

In light of this, it’s unlikely that mortgage interest rates are going to fall anytime soon. But what does this mean for the wider picture?

Mortgage rates today and in the future

Depending on your current mortgage agreement, you could be in for an expensive time ahead. Those on fixed rate mortgages are lucky for now, however, when it comes time to renew their mortgage it is likely they will see a sharp increase in repayments. This will depend on the rate of inflation and interest rate when their term comes to an end – meaning those on fixed mortgages for another few years may be lucky enough to avoid this crisis if things should settle.

Another viable option for those struggling with increased monthly repayments would be to extend the term of their mortgage. This will mean smaller monthly repayments, but you have to remember that you will be paying more interest in the long-term as you will be making more payments.

As always, comparing the available mortgage deals on the market is a fantastic way to find a mortgage deal that suits you. While the majority of policies will have increased in price at this time, a fixed deal could still be beneficial, especially if taken out now before any more increases to the interest rate. Fixed deals don’t fluctuate with the market, meaning that if things do progress and interest rates continue to rise as some have predicted, you’ll likely still be getting a better deal than if you signed up for a variable tariff.

Expert advice will see you through

As a dentist, there’s every chance that you have both your home mortgage and practice mortgage to consider. These increases to the interest rate can make a significant difference, especially in challenging times.

To find the best mortgage deals for all of your properties, a smart idea is to seek guidance from a team of independent financial advisers (IFAs). This way, you can guarantee that you will receive informative, current, non-biased advice that will help you to find the right mortgage deals for you and your properties.

The award-winning team at money4dentists have years of experience helping dentists find advantageous mortgage deals. As we only work with dentists, we have a unique understanding of the industry and always provide bespoke advice that truly helps individuals to maximise their finances.

Weather the storm for a brighter tomorrow

Volatile markets come and go, and we may find that mortgage interest rates plummet in the near future – uncertainty isn’t always negative. However, regardless of the current situation it always pays to speak to experts who can give you high-quality guidance. This way, you know that you are taking the right course of action at the time, giving you the confidence and security in your finances that you need to overcome future challenges.

For more information please call 0845 345 5060 or 0754DENTIST.

Email info@money4dentists.com or visit www.money4dentists.com

Richard T Lishman
Managing Director of the 4dentists Group of companies

[i] MoneySuperMarket. How changing mortgage interest rates affect your expenses. Link: https://www.moneysupermarket.com/mortgages/mortgage-interest-rates/ [Last accessed November 22].

[ii] The Guardian. UK mortgage rate rises ‘will put extra 400,000 people in poverty’. Link: https://www.theguardian.com/business/2022/nov/04/higher-mortgage-costs-poverty-analysis-bank-of-england-base-rate [Last accessed November 22].