The Bank of England (BoE) has cut its headline base rate from 4.5% to 4.25%.

The Monetary Policy Committee (MPC) voted five to four in favour of a 0.25% rate cut.

Two members voted to hold the bank rate at its current level, while the final two opted for a bigger 0.5% cut in the base rate. 

The MPC underlined what it sees as significant economy issues ahead for the UK economy as the reason for its cut.

However, in its latest forecast it sees inflation rising to 3.7% by the end of this year. Despite this the MPC has pressed on with cuts as it sees the increase in price rises as a temporary phenomenon. 

Dean Butler, managing director for retail direct at Standard Life, part of Phoenix Group, comments: “This is the second significant move by the MPC in 2025 and maybe not the last following lower than expected March inflation and sluggish economic growth. 

“Uncertainties remain around any inflationary impact of April’s employer National Insurance increase, market uncertainty following the US tariffs and wider geopolitical issues however some forecasters predict a series of rate cuts in the year ahead.”

How it affects households

The BoE base rate underpins the cost of debt in the economy and the rewards that savers get for stowing their cash.

Butler adds: “For borrowers, particularly those on variable rate mortgages or approaching the end of a fixed term, today’s rate cut will come as welcome news. Lower interest rates mean reduced monthly repayments, easing financial pressure for many households. 

“However, with ongoing cost of living challenges still front of mind for many, particularly in the context of April’s bill rises, any savings will likely go towards covering immediate expenses rather than discretionary spending. Those with unsecured borrowing like credit card balances may also benefit, though lenders often pass on cuts more slowly in these areas.”

Mortgage rates take some of their cues from the base rate, but it is not necessarily a clear-cut relationship. Much of the market is already priced in ahead of base rate moves thanks to swap rate market and how lenders plan their business. 

“For savers, however, there’s a more complex picture,” Butler continues. “Cash savers may find returns begin to erode in real terms, particularly if inflation remains above the Bank’s 2% target. 

While it’s important to maintain a level of accessible, cash-based savings for emergencies, those with longer-term goals might consider investing to help make their money work harder.”

LISTEN: Mouthy Money podcast on why the Bank is cutting its base rate

Unclear outlook

The Bank’s rate cut comes against a backdrop of rising economic and geopolitical uncertainty. This is thanks chiefly to US President Donald Trump’s ‘tariff war’ and the consequent chaos this caused in investment markets.

However, the UK Government is today due to announce a free trade deal with the US -the world’s largest economy. In recent days it already published details of a deal with India, the world’s fourth largest economy. 

Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown explains: “Given that the UK economy is decelerating into a dark tunnel of uncertainty, it comes as little surprise that policymakers have opted for an interest rate cut. Decision makers round the table want to avoid [economic] activity grinding to a complete halt. 

“By cutting borrowing costs, they’re hoping to relieve pressure on businesses, stimulate demand in the economy and shine a light towards a recovery. Inflation may still be above target, but deflationary forces are at work, which could have worrisome consequences for growth and are likely to act as a dampener on price rises.”

This explains the BoE’s more aggressive approach, although it has stood back from slashing the rate by a higher amount for now.

Streeter continues: “A recession rather than stubborn inflation is the ogre to avoid right now. The niggling worry of high pay demands looks set to be fading into the background given that hirings have been scaled back by many firms. There is also the chance that an influx of cheaper Chinese-made goods could infiltrate the retail scene and land in virtual baskets. 

“Cut price giants Shein and Temu have increased ad spending in the UK and other parts of Europe, as the US looks like a much more hostile environment. With worries about inflation evaporating and fears about growth rising, it looks like this rate cut could be followed by at least two – and potentially three – more this year.”

Image courtesy of the Bank of England

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Paying off your mortgage early is an enticing idea. For most homeowners, becoming mortgage-free is the ultimate milestone – and they dream of how to spend the extra cash once their debt is gone.

If you’ve built up a healthy savings pot, it might be tempting to clear your mortgage early and live the rest of your life debt-free. 

But is it always the right move? What should you consider before making that decision? And how do you actually go about it?

Mouthy Money answers those questions – and more – below.

The benefits of paying off your mortgage early

There are plenty of upsides to clearing your mortgage ahead of schedule.

For starters, there’s the peace of mind that comes with knowing your home is fully yours, no matter what life throws at you. If you lose your job or fall ill, you’ll always have a roof over your head.

It also frees up a load of cash that you can put towards other things, such as home improvements, retirement savings or even that holiday you’ve always dreamed of.

Depending on how much you have left on your loan, it could also save you thousands of pounds in interest over the long-term.

For example, let’s say you have a £250,000 mortgage at a 4.5% interest rate over 25 years. That means your monthly repayments would be around £1,390.

If you increase your repayments by just £100 a month (to £1,490) you’d save £21,871 in interest and clear your loan two years and 10 months early.

If you increase your repayments by £200 a month, you’d save £38,458 in interest and shave five years and one month off your mortgage.

Some people prefer to make lump-sum payments, rather than increase their monthly outgoings. But the same principles apply.

Let’s say you received a £10,000 bonus or inheritance and put that money towards the same £250,000 mortgage. In this case, you’d save £19,584 in interest and pay off your loan one year and nine months early.

Great, so I should just go ahead and pay off my loan early?

Not quite. While there are clear advantages to paying off your mortgage, it may not be the best option for everyone.

First, check that your lender allows overpayments and if there are any charges or penalties for doing so.

If you’re on a tracker mortgage linked to Bank of England Base Rate, you can usually overpay as much as you want without charges – but check with your lender first.

However, if you’re locked into a fixed-rate deal, you’ll typically be limited to overpaying 10% of your outstanding balance per year.

So, if you owe £250,000, you can pay off up to £25,000. But if you go over that, you’ll probably have to pay an early repayment charge (ERC) – and they’re not cheap.

On a five-year fixed rate, typically ERCs are 5% of your outstanding balance in year one, 4% in year two, 3% in year three all the way down to 1% in the final year.

So, if you owe £250,000, that’s a whopping £12,500 in year one, £10,000 in year two, tapering down to £2,500 in the final year of your five-year fixed rate.

Therefore, you need to do the sums to work out whether it’s worth your while repaying your loan early.

I don’t have to pay ERCs – should I press ahead?

Even if you don’t have to pay ERCs and have the cash, you need to ask yourself a few additional questions before diving in.

Firstly, do you have enough savings to cover emergencies, such as losing your job or unexpected car or home repairs?

Experts recommend that you have at least three to six months’ worth of living expenses in an easy-access account to cover unexpected expenses. You should prioritise this safety net before overpaying on your mortgage.

Next, ask yourself: am I carrying high-interest debt such as personal loans or credit cards?

If the answer is yes, it usually makes sense to clear those first, as they tend to charge higher rates of interest than your mortgage.

After that, you need to ask yourself whether your money could be working harder elsewhere.

Compare the rate on your mortgage with the rate available on high-interest savings accounts or investing.

As a rule of thumb, if your mortgage rate is higher than the interest you can earn in a savings account, overpaying your mortgage may make sense.

Let’s return to the example above, where you have a £250,000 mortgage on 4.5% over 25 years, and you want to pay £10,000 off your loan in a lump-sum.

For the sake of this example, let’s also assume that you’re a basic rate taxpayer and the best savings account on the market pays 5%.

Paying an extra £10,000 off your mortgage would save you £19,450 in interest and shave one year and nine months off your term.

However, you would still be £3,080 worse off paying £10,000 off your loan than if you’d put it in a 5% savings account, even though your mortgage would be cleared in just 23 years and 3 months.

That’s because over that time your savings would be worth £31,360, which would be more than enough to repay the remaining £28,280 left on your mortgage balance – and leaving you £3,080 spare.

If you’re unsure whether you’d be better off repaying your mortgage or saving your money instead, moneysavingexpert.com has a handy calculator you can use.

Investing in the stock market could also offer better long-term gains – typically 5-7% a year after inflation – but it carries risk, and returns aren’t guaranteed.

Whatever your choice, it’s worth speaking with a mortgage broker or financial adviser to get tailored advice. 

LISTEN to the Mouthy Money podcast

I’m going ahead with it. How do I do that?

Most lenders make overpayments pretty straightforward. You can either ask them to increase your monthly direct debit or make one-off payments via your online account or over the phone.

If you prefer a more flexible approach, making lump-sum payments when you get a bonus or extra income might work better for you.

Are there any clever ways I can build up my cash savings to pay off my mortgage early?

There are ways you can increase your monthly repayments without feeling the squeeze.

For example, every time you get a pay rise, put the extra cash straight towards your mortgage. You won’t miss the money – after all, you never had it to begin with.

But as outlined above, you need to ask yourself whether you’d be better saving that money or paying down other debts instead.

There are also apps to help you overpay your mortgage. Accelerate My Mortgage and Sprive, for example, combine cashback and Artificial Intelligence to give you the tools to pay off your mortgage earlier.

Disclaimer: Mouthy Money has not tried either of these apps, so make sure you do your homework before you sign up to anything.

Alternatively, banks like Monzo and Starling offer ‘round-up’ features. If you buy a coffee for £2.60, the app rounds it up to £3 and squirrels away the 40p difference in a separate savings pot. Over time, these small amounts can add up and be used towards overpayments.

The best part is you barely notice it happening – but your mortgage balance certainly will.

Mortgage-free life

Paying off your mortgage early can feel like an incredible achievement, but it’s not a one-size-fits-all decision.

Make sure you’ve got an emergency fund, cleared any expensive debts and considered your long-term goals. Then speak to a mortgage broker to help weigh up your options.

And if you do decide to go for it, congratulations – you’re one step closer to financial freedom.

Photo by RDNE Stock project

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An interest rate is the cost of borrowing money or the return on investment when you lend money or deposit it in a savings account. It’s usually expressed as an annual percentage of the amount borrowed or invested. 

Types of interest rate:  

1. Base Rate: The Bank of England sets a “base rate,” which is the interest rate at which commercial banks borrow from the Bank of England. This rate influences the interest rates that banks charge their customers for loans and mortgages, as well as the rates they offer on savings accounts. 

2. Fixed Interest Rate: This is an interest rate that remains constant over a specific period. For example, if you have a mortgage with a fixed interest rate, your monthly payments will stay the same for the duration of the fixed term, regardless of changes in the base rate. 

3. Variable Interest Rate: A variable interest rate can change over time, often in line with the Bank of England’s base rate. For instance, if you have a loan or mortgage with a variable rate, your payments might increase or decrease depending on changes in the base rate. 

4. APR (Annual Percentage Rate): This is a broader measure of the cost of borrowing, including not just the interest rate but also any additional fees or charges. It’s a useful figure for comparing different financial products. 

Interest rates have important implications for households, businesses and the wider economy. This is why the Bank of England tries to manage its base rate accordingly to produce the best outcomes for all considerations.

Ask our experts your money questions

Would you like a money question answered? We have a panel of experts who can answer a whole range of different queries, from mortgage rates to pensions, savings and benefits – our experts have answers you need!

To get in touch, fill out our form or email editors@mouthymoney.co.uk with your name and question.

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The post Word of the Week – Interest Rate appeared first on Mouthy Money.

The mortgage market was a largely quiet place for more than a decade.

Setting the scene of how we got to this point, before the Great Financial Crisis (GFC) began the Bank of England (BoE) increased its base rate to 5.75% in July 2007.

Once the GFC began, the base rate fell precipitously as the BoE sought to kickstart the economy, plummeting to just 0.5% by 5 March 2009.

From this point, the base rate didn’t rise above 1% for just short of 13 years – an extraordinary period of low rates.  

Move forward to today and the situation couldn’t be more different. Post-pandemic inflation and energy crises sent the base rate soaring to quell price rises. It now sits at 5.25%.

Why this matters for mortgages

The base rate doesn’t directly affect the market for mortgages. Mortgages themselves are priced in the UK by what are called ‘swap rates’. Banks and other lenders use swap rates to manage their exposure to the central bank rate.

The effect of a rising bank rate has been to significantly increase the cost of borrowing for all types of credit. But mortgage rate increases have been especially painful for new homebuyers because they form such a large proportion of household budgets.

Rising mortgage rates mean prospective buyers have to absorb higher monthly payments or find more affordable property. Those remortgaging are finding themselves with significant payment increases and potential difficulty meeting affordability criteria.

Now however, the economy looks to have overcome the worst of the inflation crisis. So the big question looming now is whether mortgages are going to get significantly cheaper again, as the BoE looks to decrease its base rate.

The issue here is that the BoE base rate doesn’t correlate perfectly with pricing trends in the swap rate market. This makes discerning what happens next in the mortgage market more complicated than it would appear.  

When can we expect a base rate cut?

Mouthy Money called together a group of mortgage market experts to gauge their views on what happens next in the mortgage market where interest rates are concerned. The group were somewhat divided on the near-term implications for rates this year.

John Davison, head of product, proposition & distribution at mortgage lender Perenna, says political uncertainty surrounding the potential outcomes of various countries’ elections will have an impact on where swap rates move. This is a bigger geopolitical issue than just the UK.

“We’ve got an interesting Summer ahead of us,” he says. “If the polls are to be believed we are likely to have a change in government in the UK quickly followed up by a budget, an election in France and an election in the US which will feed into swap rates over here in the UK, so there is an awful lot happening before the end of the year.

“Swap rates are pricing an assumed base rate cut of either 0.25 or 0.5% before the end of the year. The outcome of the election and the content of the budget will influence whether it comes in September or October.”

Polly Gilbert, co-founder at digital mortgage broker Tembo agrees, but is plaintive in light of potential rate cut delays: “I have been holding out hope that it would be August. But there is so much uncertainty ahead.”

Gilbert is concerned a new government could choose to take more painful decisions quickly in order to maximise their electoral mandate, which could increase some economic uncertainty.

She adds: “The cynic in me thinks that, if elected, Labour will introduce some of its more grisly and unpopular policies first which could create even more turbulence. Even so, I would like to say the first cut will come on September.”

However, mortgage expert Roger Morris points out that rate cut expectations have had bad form for delays recently. This comes as the key economic factors, such as employment and GDP, which would persuade the BoE to cut have left the situation looking more puzzling.

“I think there will be a bit of a twist to this,” he says. “In December 2023 there was a real sense there would be at least three base rate cuts this year. The BoE were even doing mini summits around the country saying we were going to get that reduction.

“Headline inflationary data may prove to be more disappointing than hoped. I think it won’t be until the latter end of the year that we will see a base rate drop. I still think we are a little way off yet.”

With inflation returning to normal levels and economic growth stalling, many interest rate watchers had expected a BoE cut in June, but this failed to materialise. The BoE’s Monetary Policy Committee (MPC) faced criticism for shying away from cutting the rate at a politically contentious time, with the General Election in full swing.

But Steve Mannakee, national account manager at specialist mortgage lender West One, says in reality there was never likely to be a June rate cut. He thinks the political delicacy of the General Election, despite the inevitability of the result if the various polls are accurate and what the winning political party enacts, is reinforcing a ‘wait and see’ attitude in both the BoE and markets.

“I don’t think there was ever going to be a June BoE base rate reduction,” he says. “The base rate hasn’t gone down as its too politically sensitive for the BoE to do that, but I don’t think it was going to happen anyway.  

“I was also holding out for August but we are almost certainly looking further into the Autumn, likely following the results of a new Government Budget.”

What will interest rates look like in two years?

Our experts would seem to agree broadly that the base rate will start to come down later this year, despite some differences on the specific timing.

But what about the longer term? Mortgages are a strange product compared to say, insurance. We’re all accustomed to the annual dance of insurance renewals, for instance. Get a bad renewal price from your provider and you’re free to shop around.

Mortgages are a longer-term product though, with deals typically fixed for two, five or 10 years. The market is also changing to include even longer mortgages running as much as 40 years in some cases. This makes taking a decision on what type of deal to get a more complex and consequential decision for households to make.

Davison is emphatic that borrowers shouldn’t anticipate big declines in rates for mortgages in coming years, despite the rock-bottom rates of the 2010s until recently being the norm. He also cautions that the base rate and mortgage swap rates are not inextricably bound together.

“We had 10 years of very low mortgage rates. There’s talk of base rate drops of 0.25-0.5% this year, but that doesn’t mean fixed rates are going to come down. The media likes talking about mortgage rates coming down when base rate comes down, but that doesn’t always work in practice.

“Lenders have already priced base rate expectations in. Lenders are currently lending on swaps that are expecting those rate drops to happen. What we have seen over the last two months are rates fluctuating up and down in reaction to the BoE pushing those rate drops back and back and back.”

Gilbert agrees with Davison’s caution over media hype around the base rate, and the overegging of its impact on mortgage rates.

“It’s interesting how the base rate announcement has become such a media moment,” she says. “We see big spikes in activity at Tembo after base rate announcements and that does concern me. There is this sense it will always be the next announcement that will bring a cut.

“That is heightened now as we have hit the inflation target. People are feeling good about that, there are a lot of people asking questions as to why the base rate wasn’t cut last time. To me it was obvious that it wasn’t going to come.

“There is a ‘held breath’ feeling at the moment for our customers, especially among first-time buyers, and people are looking to sell their property. It drives a feeling that when the base rate changes it will be a huge watershed moment where rates will start dropping to 3.2%-3.5%. As an industry we have a role to play in educating people on the reality.”

Roger Morris can see average rates declining to around 4%, but this he warns is dependent on major geopolitical and economic factors, which the UK has little control over.

“The BoE thinks there is still some education needed for families that we aren’t going to get a big drop anytime soon. In two years’ time I think we will get to 4%-4.25%.

“There is some speculation over that period that we could get as low as 3.75% but it depends on the performance of the UK economy. There are so many other geopolitical events that impact mortgage pricing these days and so I think if we get to that 4%-4.25% level we’ll be doing well.”

Davison agrees: “Assuming the base rate stabilises around 3.5%-3.75%, you are still looking at mortgage rates that start around 4% for most products. This is the new normal.

“We are going to see innovation in product availability and types but this is probably the new normal for rates. They aren’t going to come down from much further than where they are now.”

Photo by Karolina Kaboompics

The post The ‘new normal’ for mortgage rates appeared first on Mouthy Money.

We have entered a new era in mortgage lending. The era of rock bottom rates is over. The question on everyone’s lips now is where will the market settle are what is likely to be the new normal for mortgage rates?

For most commentators’ rates are still too high, especially as inflationary pressures ease. So, that begs the question when will see a cut to the Bank of England base rate to help stimulate the stalling UK economy?  Well, we’ve got an interesting Summer ahead of us.

There are many external factors that will impact that decision. A new Government is set to be elected in the UK and will most likely signal their intent with a mini budget soon after the polls close. In the wider world we have an election in France that is already creating an amount of political and economic turmoil and a presidential race in the US which will certainly feed into Swap rates, one of the main funding mechanisms used by many lenders in the mortgage market to ensure they have money to lend to homeowners.

All those factors, and Swap rates in particular, are likely to have a huge bearing on the rates UK mortgage borrowers will pay on their mortgages.

Looking at this picture, and contrary to the prevailing wisdom from earlier in the year, I don’t think we are going to see a Bank of England base rate reduction this summer. Not least because a cut this close to an election is too politically sensitive for an independent and supposedly politically neutral Bank of England. In my view we are almost certainly looking at Autumn for any cut and it will likely follow a mini budget from whoever the new government will be.

If the short-term picture is complicated then perhaps it pays to look back. On occasions like this it can be helpful to look to history to see what we can learn about what our new normal may be.

Thinking back to when I came into the industry in the mid-1990s I was advising on mortgages with a five-year fixed rate of 13.65%. That is a figure that may make younger borrower’s eyes water but back then that was considered a good deal!

I mention that as context and to make the point that it’s interesting so many feel that having a base rate of close to zero ushered in some kind of golden era. Perhaps it was if we consider only mortgage borrowers. However, it’s debatable how good those long-term low rates have been for the wider UK economy and it was certainly bad news for savers.

We also forget the driving factors behind why Bank base rate ended up at 0.5%. It was a response to the small matter of a global financial crisis in 2008 which saw lenders such as Northern Rock go to the wall and many another lenders wobble under the pressure.

Taking all of that into account I think the new normal mortgage borrowers should expect for interest rates in two years’ time is likely to be between 3.5% – 4%. That should help ensure that inflation is kept in check, that the UK economy can grow and lenders and borrowers can maintain sensible lending practices which is crucial for a healthy and stable mortgage market.

As the cost of borrowing increases then eligibility criteria may also become more of an issue. It’s more important than ever that borrowers shop around the market and find lenders that can intelligently assess a borrower’s position.

At West One we pride ourselves at taking a more human approach to the eligibility process and I think, now more than ever, that will prove valuable to our customers as they readjust to the new normal in mortgage pricing.

Steve Mannakee is national account manager at specialist mortgage lender West One.

Photo by Ketut Subiyanto

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John Davison from Perenna replies: When you apply for a mortgage, the lender wants to see that you can afford the repayments now, and in the future.

Getting your finances in shape ahead of applying for a new mortgage or a remortgage can really help.

Doing this can give you more lenders to choose from and access to more product options.  

My top tips are:  

• Ensure that you are on the electoral register (sometimes called the electoral roll) and that all your bank accounts, loans, and credit agreements are registered at your current address. This helps the lender get a clearer picture of your finances and can prevent issues later in the process.  

• Make sure you aren’t just making the minimum payment on credit cards.  Affordable, well managed debt isn’t necessarily an issue if the lender can see that you are repaying it and can afford the debt alongside the mortgage.  
   
• Don’t order that new sofa yet! If you plan on taking out more credit, don’t be tempted to order it before you move in. Any changes to your credit file or your expenditure could affect the lenders decision to offer you a mortgage or reduce the amount they are willing to lend.  

Once you have completed a spring clean of your finances, use a broker – different lenders will use different affordability calculations and assess your circumstances differently. A broker can help you find the most suitable product for your needs and circumstances.  

Remember, rate isn’t everything – different mortgages offer different levels of security and product features that may suit your circumstances better.

Work to a budget and ensure that whichever mortgage you choose, it works for you now and in the future. Your broker should take time to fully assess your needs and risk appetite before recommending the right product for you.  

Photo by Andrea Piacquadio

The post Is there anything I can do with my finances to get a better mortgage rate?  appeared first on Mouthy Money.

The mortgage market has had a turbulent time over the last few years. By the end of 2022, as a country we’d gone through four Chancellors of the Exchequer, three Prime Ministers, and a new monarch.

Not to mention inflation rising to 11% – its highest rate in 40 years – and Liz Truss’ disastrous mini-budget sending mortgage rates to levels not seen since the 2008 financial crisis.

Over 2023, mortgage rates continued to stay high thanks to several base rate rises by the Bank of England to curb inflation.

So far in 2024, we’ve already seen mortgage rates fall, rise and fall again, alongside stagnant economic growth – not to mention an election on the horizon.

These economic changes have a huge impact on the property market. First-time buyers are facing the toughest conditions in 70 years, while the current higher rates are squeezing mortgage affordability for remortgagers and home movers.

As experts in mortgage affordability, here’s our advice to first-time buyers and remortgagers looking to navigate this new landscape.

1.   Shop around for the best rates

Don’t settle for the first mortgage rate you are offered, or go straight to the bank you have your current account with.

There are thousands of mortgage products out there, and different lenders offer different rates and terms, so it pays to shop around. Even a small reduction in your interest rate can result in significant savings over your mortgage term.

Working with a trusted mortgage broker can help you find the best deal for you from across the market.

At Tembo for instance, we compare your eligibility to over 20,000 mortgage products and over 15 specialist schemes to find the best ways for you to get onto the ladder, move up it or remortgage.

This includes ways to boost your affordability to access better deals, as well as ways to make your repayments more affordable.

2.   Get expert advice

The mortgage market can be volatile, and it’s impossible to predict what’s going to happen to mortgage rates or property prices over the next few months or years.

But working with a specialist mortgage broker – such as our team at Tembo – can help you navigate fluctuating interest rates, stricter lending criteria, and the wide offering of mortgage products available.

Mortgage brokers are normally the first to know when lenders are going to change their mortgage rates, so can help you lock in a rate before it’s repriced, or let you know when rates change.

If you’re far away from buying or remortgaging but want to keep an eye on current rates, we offer a free Tembo plan you can see personalised interest rates which auto-update every month. 

As experts in affordability, we can also help you find ways you could boost your buying budget, or access lower mortgage rates through a range of specialist schemes.

3.   Understand your budget

While interest rates remain high, it’s crucial to factor this into your budget when it comes to remortgaging or purchasing a property.

While mortgage rates are expected to come down this year, this isn’t guaranteed, and any drop is likely to be gradual.

Try using an online mortgage calculator to get a rough idea of what your monthly payments could look like.

If you go for a variable rate instead of a fixed rate, make sure you could afford your repayments if rates were to increase by 1-3%.

4. Get pre-approved early

In a competitive market, having a mortgage pre-approval gives you a significant advantage.

Getting a Mortgage in Principle – a formal document that shows how much you could borrow if you applied for a mortgage based on basic information like your income – shows that you are a serious buyer who can afford the property, which can be a deciding factor if you end up in a price war.

In fact, some home sellers and estate agents won’t let you view a property without one.

Once you’ve found a property and you’re ready to make an offer, get your mortgage offer set up as soon as possible. You can always re-apply later down the line if you find interest rates have dropped dramatically since you first applied.

Plus, mortgage offers are normally valid for three to six months, so even if rates do rise you’ll have locked in a deal already.

If you’re remortgaging, you can lock in a new rate to switch onto up to six months before your current deal ends.

With our free rate-checking service, if you apply for a remortgage through us six months before your fixed term ends and interest rates go down in that time, we can submit a new application for you at no extra charge.

If rates go up, then your lower interest rate will be safely locked in. So it’s a win-win!

5. Think outside the box

Not only are there thousands of mortgages out there, there is also a huge rise in the number of affordability-boosting schemes to help you get on the ladder, move up it or stay on it. House prices have increased by over 200% since 2000, while wages have stagnated, and lender criteria has got stricter.

The average home in the UK now costs 10x income, while in most traditional mortgages you’ll only borrow up to 4-4.5x your household income, leaving a huge affordability gap.

Using a specialist scheme like a family guarantor mortgage, shared ownership, or 5.5x income mortgages can significantly boost your affordability, help you buy sooner or access lower interest rates.

It can be difficult to navigate these affordability-boosting schemes by yourself, or through a traditional broker. This because a lot of these schemes are niche, and can have very specific eligibility criteria, which can make it hard to find out about them, and know if you qualify for these schemes without an expert’s help.

Whether you’re buying your first home, moving up the ladder or looking to remortgage, staying proactive and getting expert help will help you make the best decisions in today’s dynamic environment.

This blog was written by the multi-award winning mortgage affordability experts at Tembo.

Photo by Kindel Media

The post How to navigate today’s choppy mortgage market appeared first on Mouthy Money.

In homes across the UK, a quiet revolution has been unfolding for nearly two years. It is one that could redefine how families view their future financial stability.

In September 2022, the Monetary Policy Committee started the process of increasing the Bank of England base rate from 0.25% all the way up to the current peak of 5.25% to combat what had become a rampant inflation rate.

This rapid rise came without much warning and is a stark reminder of the precariousness of our assumed financial certainties. For too long, homeowners have been allowed to settle into the comfort of low interest rates, treating them as the status quo rather than the historical exception they really are.

The reality is that the low Bank of England base rate was never meant to be a permanent fiscal fixture. That low rate was a temporary measure, and part of a necessary response to the 2008 global financial crisis and again to the economic devastation wrought by the COVID-19 pandemic in 2020.

History shows us how certainty is not a luxury we can count on when it comes to our finances. And here we are, facing another unexpected turning point that leaves us all to consider what the new normal may be for mortgage borrowers in the next few years.

All indications are that interest rates are set to stay a lot higher than we have become accustomed to and that may signal a potentially painful adjustment period for many. But this new normal isn’t just a statistical adjustment on a central bank’s balance sheet; it’s a reality that could strain household budgets significantly.

The Bank of England is aware of that. In its most recent Financial Stability Report it estimated that mortgage payments would go up by 50% or more for 400,000 UK households by 2026 creating more pressure and uncertainty for those people as a result.

The Bank of England must be transparent about the logic behind its decisions and the likelihood and rationale of rate increases or decreases in the future. It is not enough to react to crises; we must prepare for them.

Even for industry experts, predicting where the base rate will be over the next two to three years is a challenge. While the expectation is they will tick down a little from where they are today the fact is that rates in and around 4% is the least we should expect in the near-term at least.

With that in mind, fixed-rate mortgages, may also be considered the first line of defence for borrowers seeking stability in an unstable economic environment. Many homeowners have purchased properties based on unusually low interest rates, with rates close to one percent being the norm.

But when those families look to refinance and they are finding mortgages prices in and around the 5% mark instead. In that context, locking in rates you can afford now, may be sensible for many.

The fact is that the ‘certainty’ of low interest rates was never a reality. This new normal of mortgage lending in 2024 proves that. It is a new normal that will require adaptability, foresight, and resilience from borrowers and I am certain of one thing. That the people of the UK possess those qualities in abundance.

Roger Morris is a mortgage market expert with over 30 years’ experience in the sector

Headline photo by Tima Miroshnichenko

The post Rising rates have reacquainted us with some hard mortgage truths appeared first on Mouthy Money.

Interest rates were at an all-time low for a long time. In fact, homeowners may be forgiven for thinking that the rates we saw over the last decade were the ‘norm’, and that current mortgage rates available are ‘excessively high’.

In the UK, interest rates are a topical subject, with speculation as to what will or won’t happen regularly making headline news.  And if the news reports are to be believed, it’s only a ‘matter of time’ until rates start to fall again.

Unfortunately, this may only be part of the story. For most of 2024, journalists have been predicting a drop in the Bank of England base rate (the rate of borrowing that the Bank of England charges to its customers – other banks and lenders).

But what does this mean for borrowers?  Will this signal an instant change in mortgage payments?

Homeowners aren’t borrowing money from the Bank of England; they’re borrowing from a mortgage lender. And a drop in the base rate does not mean that a lender is obliged to pass on a discount.

In fact, if you already have a fixed rate mortgage, that rate won’t change at all until the end of your incentive period.

And if you are on a variable rate, your monthly payment may not drop either, as sometimes your monthly payment is linked to the lenders standard variable rate – and not the Bank of England base rate.

So, when will rates fall?

Current expectations are for the Bank of England to reduce their interest rate at some point this year.  But we also have a general election to navigate and an emergency budget in the autumn which could have an impact on the timing and magnitude of that change.

And don’t forget about the election in the USA. Although this may not seem relevant, in our global economy, the cost of lending is affected by global events!

The other thing to consider is lenders may have already assumed a reduction in base rate. This means that some of the rates available to you today were made available with that potential reduction already in mind.

And therefore, mortgage rates offered across the market if base rate does fall, may not change as much as first-time buyers would like.

What is the new normal?

It’s hard to say what the new ‘normal’ will be, but many commentators expect the Bank of England base rate to settle near 4%. This would give us average mortgage rates of 4.5% – about 1% lower than today.

But the timing of this reduction is critical and brings many questions. What if it takes two, three or even five years to get there? How will house prices change during that time? Are you prepared to put your life on hold while you wait? Is what you may eventually save in interest rate worth the risk of waiting?  

If you’re looking to make that first step on the property ladder you must consider all these factors.

How can Perenna help?

It’s hard to predict the future, but with a Perenna mortgage you don’t need to. If you can afford your monthly payments today, you get the reassurance of knowing you never have to worry about your payments going up.

We also know the question of ‘how much can I borrow?’ can be a top priority. So, we’ve designed a product to help.

With our mortgages, you can borrow up to six times your income, subject to criteria. This could act as a huge boost for those struggling to get onto the property ladder.

Curious about how much you could borrow? Try our mortgage calculator today.

John Davison is head of product, proposition & distribution at mortgage lender Perenna

You could lose your home if you don’t keep up your mortgage repayments.

The post Don’t be distracted by Bank of England base rate cuts appeared first on Mouthy Money.

With skyrocketing energy bills and mortgage rates, it’s becoming more important to balance your monthly income and spendings.

Here are some of our favourite stories from around personal finance this week to help you get your head around money.

Five things you didn’t realise were affecting your credit score

Nicole Garcia Merida, writing for Money Week, highlights tips to ensure that you’re keeping your credit score in good shape by avoiding key mistakes:

1. Taking out a mortgage or joint account with somebody with bad credit: Couples often combine their finances in joint accounts and take mortgages together. However, if you are linked with somebody with a bad credit score, this can negatively impact you.
2. Avoiding credit: A good credit score comes with a mix of credit products and being able to show lenders that you can make timely repayments. If you do not take any credit at all, you cannot show them that.
3. Applying for too many credit cards: Multiple applications for credit suggest that you are in desperate need of money and have a high risk of default.
4. Receiving a county court judgement (CCJ): A CCJ is registered when somebody claims you owe them money. This can seriously affect your score and take around six years to clear.
5. Not being registered to vote: Lenders will find it harder to access and verify your details and identity if you are not on the electoral register. Being on it will record your personal data and make the process easier.

You can use credit reference agencies like Equifax, Experian, and TransUnion to check your credit score.

Consumers save nearly £3m by reducing energy use at peak hours

Consumers saved nearly £3m by reducing energy usage throughout peak times according to National Grid’s latest data on its money-saving scheme. 

Nicole Garcia Merida, writes for Money Week, to help readers better understand why National Grid is offering the scheme, and how to save energy efficiently.

The electricity system operator (ESO) is worried about the strain on electricity networks with plunging temperatures in December. Paying customers to reduce energy consumption is their easiest way to balance the system.

Running appliances outside of peak hours (between 4-7pm) could lead to credit on bills, and ultimately lower monthly energy bills for your household.

Money Week also presents several comparisons between heating modes and dryer options for you to determine which one works best for you.

What 12 months of interest rate rises did to our finances – and what to do next year

Rachel Mortimer, writing for the Telegraph, takes you through the 12 months of 2022 that changed your finances and helps you prepare for what’s coming in 2023.

• Mortgages

The Bank of England made its ninth rate rise on Thursday bringing the interest rate to 3.5%. First-time and recent buyers have been affected by these rising interest rates with lesser opportunity for them to add equity to their property.

People are spending larger proportions of their monthly incomes on mortgage payments with several unable to afford the rise.

• Savings

While most lenders passed on every bank rate rise onto their mortgage customers, there are only a few that have done so for their loyal savers.

With inflation at 10.7%, £10,000 will be worth £8930 in 12 months.

Banks like Santander, Barclays and Lloyds increased some variable rates by 2.9% but only passed on minimal rises of 0.39-0.49 percentage points to customers with £10,000 in their easy and everyday saver accounts.

• What 2023 will bring

Bank rates are expected to peak at 4.5% in the first half of 2023.

However, lenders have started dropping their prices in recent weeks. Most brokers in the market believe that the worst is over and the end of 2023 will present a more stable situation.

Photo by Microsoft 365 on Unsplash

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