Rising interest rates: What first-time buyers need to know

4-minute read, published 18 July 2023

You’ve probably heard a lot recently about rising interest rates; whether it has been your parents worrying about their fixed rate deal coming to an end, or Martin Lewis fighting the good fight and helping to educate the nation, there has been a wave of headlines of late.

Put simply, the Bank of England has been raising interest rates in an effort to combat inflation i.e. the cost of everyday products increasing. The Bank has a remit to keep inflation around 2%, which we are currently well above (7.9% in June, although this is down from a high of 11.1% in October 2022) and increasing the Base Rate is the main weapon in their arsenal.

This increase in the Base Rate has led to a rise in mortgage interest rates, which is making it more expensive for first-time buyers to get on the property ladder.

So if you’re a first-time buyer who’s worried about rising mortgage interest rates, here are a few things you need to know:

How could higher interest rates affect your monthly mortgage payments?

The impact of higher interest rates on your potential monthly mortgage payments will depend on the size of the mortgage you take out and your loan-to-value ratio. A 1% increase in interest rates would typically add around £100 to your monthly mortgage payments for every £100,000 you borrow.

What can you do about it?

Whilst we can’t be certain on the future direction of interest rates, there are a few things you can do to prepare for rising interest rates:

• Get a fixed-rate mortgage. This will lock in your interest rate for a set period of time, so you won’t be exposed to any further increases.

• Put down a larger deposit. This will reduce your loan-to-value ratio, which will lower your monthly payments and make you less sensitive to interest rate changes.

• Increase your savings. This will give you a buffer in case your monthly payments do go up.

Are rates too high for me to get on the property ladder?

If you’re worried that you won’t be able to afford a mortgage at higher interest rates, you may need to reconsider your buying plans. You may need to:

• Buy a cheaper property.

• Wait until interest rates start to come down

• Put down a larger deposit.

It’s a challenging environment for potential homebuyers and rising interest rates can be daunting, but they don’t have to derail your homebuying dreams. By following these tips, you can make the process a little bit easier:

• Shop around for the best mortgage deals. Compare rates from different lenders to find the best deal for you.

• Be aware of the different types of mortgages available. There are fixed-rate mortgages, variable-rate mortgages, and tracker mortgages. Each type of mortgage has its own advantages and disadvantages.

• Don’t be afraid to ask for help. EverKnock can connect you with one of our expert mortgage advisors who can help you find the best mortgage deal for you.