Profound unpredictability of interest rates
In June, the Bank of England increased interest rates for the 13th consecutive time to bring inflation back to its target rate of 2%. Currently, the base rate of interest is set at 5%. Meanwhile, UK inflation has declined from its peak of 11.1% in 2022 to 8.7% in the period up to May 2023.
When it comes to interest rates, we are all sailing in the same boat concerning the current economy. That said, it also depends on what sort of rate you are currently on. If you hold a variable-rate mortgage, an 
increase in interest rates will result in higher monthly payments. Therefore, exploring measures to ensure your ability to handle increased repayments is prudent.
One crucial aspect that many fail to consider is their current level of affordability. You may already be teetering on the edge, where any further rate increase could lead to financial strain. It is always wise to assess your wiggle room and avoid being caught in a situation that could cause a financial tsunami.
By taking proactive steps to assess your financial situation and plan for potential interest rate fluctuations, you can gain peace of mind and protect yourself from any unexpected financial burdens. In an inflation period, it is essential to be prepared and consider measures to maintain financial stability in the face of rising interest rates.
How is inflation measured?
When economists at the Office for National Statistics (ONS) analyse the inflation rate in the UK, they examine the changes in prices for a selection of products compared to the previous year. In the period up to May 2023, the inflation rate measured by the consumer price index (CPI) stood at 8.7%. This calculation was based on a selection of approximately 180,000 products and services that reflect typical consumer spending patterns.
By monitoring the price fluctuations of this basket of goods, the CPI provides a widely used indicator of inflation trends. In addition to the CPI, another measure of inflation is the retail prices index (RPI).
Like the CPI, the RPI also utilises a basket of goods and services and incorporates mortgage interest payments.
During the same period leading up to May 2023, the RPI inflation rate reached 11.4%. To understand the disparity between RPI and CPI inflation, it is important to assess the differences between these two measures.
The knock-on effect
Recently, inflation and interest rates have been the economic buzzwords forcing the government to tackle rising inflation. Households throughout the UK are trying to come to terms with the increase in their daily expenses for both essential and non-essential items. However, if you have a mortgage, the measures taken to mitigate the impact of inflation will have additional consequences.
The Bank of England has a duty to address excessive inflation by raising interest rates. Such an increase has impacted the amount you pay for your mortgage repayments and the overall borrowing costs in the long run.
The table below illustrates the potential effects of various interest rate hikes on a typical customer to enhance their understanding of the implications of an interest rate increase.
Below, we present an illustration showcasing the impact of how the increase in rate affects a typical interest-only mortgage. This example demonstrates how different rate rises can affect your mortgage repayment.
- Mortgage Balance: £100,000
- Remaining Term: 10 years
- Current Rate: 5.85% (example rate)
- Current Month payment: £488
| Rate Rise | Increase in Monthly Payment |
| 0.5% | £41 |
| 1% | £83 |
| 2% | £166 |
Now let’s examine how different rate rises can affect a typical repayment mortgage:
- Mortgage Balance: £100,000
- Remaining Term: 10 years
- Current Rate: 5.85% (example rate)
- Current Month payment: £1,103
| Rate Rise | Increase in Monthly Payment |
| 0.5% | £25 |
| 1% | £50 |
| 2% | £102 |
The analysis presented here underscores the significant impact of an interest rate increase on mortgage repayments. The table clearly illustrates how even a slight rise in the interest rate can translate into a noticeable increase in monthly payments. For instance, in the case of a typical interest-only mortgage, a 0.5%, 1%, and 2% rate hike can lead to respective payment increases of £41, £83, and £166.
Similarly, these rate increases for a standard repayment mortgage would result in additional monthly payments of £25, £50, and £102. It is crucial for borrowers to recognise the potential ramifications of such changes and to assess their financial capacity to manage future rate increases effectively. By being proactive and considering their affordability, borrowers can ensure they are well-prepared to navigate any fluctuations in interest rates.
Worried about a change in the interest rates?
Our online quick Mortgage Calculator is a valuable tool designed to provide insights into the potential impact of interest rate rises on your mortgage. The calculator can demonstrate how different rate increases may affect your monthly payments by inputting relevant details, such as your mortgage balance, remaining term, and current interest rate. 
This information is essential for understanding the potential financial implications and allows you to make informed decisions about your mortgage. Whether you are considering refinancing, planning for future rate changes, or simply exploring different scenarios, our Mortgage Calculator empowers you to assess the impact of interest rate rises and take control of your mortgage planning.
Want to make overpayments?
Making overpayments can be a smart strategy to accelerate your mortgage repayment and save on interest costs. With our mortgage services, you can make additional payments towards your mortgage principal, reducing the overall loan balance and shortening the repayment term.
Overpayments can help you build equity faster and become mortgage-free sooner. Our dedicated team can provide guidance on the overpayment process, answer your questions, and assist you in optimising your mortgage strategy.
Take advantage of the opportunity to make overpayments and take control of your mortgage journey.
Help and support
At Connect Mortgages, we understand that life is full of unexpected challenges and circumstances that may require immediate assistance. We are committed to providing help and support to our clients whenever they need it the most.
Whether you’re facing financial difficulties, experiencing a change in your personal situation, or need guidance on your mortgage journey, our dedicated team is here to lend a helping hand. We prioritise your well-being and strive to find solutions that meet your unique needs.
We take pride in going above and beyond to assist our clients during difficult times. Our knowledgeable and compassionate professionals will work closely with you to understand your situation and explore options 
to provide the support you require. We believe in fostering a strong partnership built on trust and empathy.
We firmly believe that everyone deserves access to the help and support they need, regardless of their circumstances. We are committed to being a reliable resource for our clients, offering guidance, assistance, and solutions tailored to their specific needs.
When life throws challenges your way, you don’t have to face them alone. Trust in Connect Mortgages to be there for you, providing the help and support you need to get you through the increased rates brought by the cost of living crisis. Together, we can find solutions and create a brighter future.
Contact us today to learn more about how we can assist you and provide the support you need. Your well-being and peace of mind are our top priorities, and we are here to help you every step of the way.
