The impact of rising interest rates on mortgage repayments

• Rising interest rates are making the cost of servicing a mortgage more expensive

• Whether this happens now or in the future depends on your agreement with your bank

• Tracker and variable rate mortgages have already become more expensive

• Fixed rate mortgages may be sheltered from interest rate rises for the time being

In most countries around the world, prices have been rising quickly in the past 18 months, making the things you buy more expensive. To try to bring prices back under control, many central banks have been raising interest rates. 

The interest rate set by central banks is what other banks use to set their own lending (and savings) rates for customers. Interest is applied on products such as mortgages and loans; sometimes referred to as the cost of borrowing. This means that as central banks have increased interest rates, the cost of borrowing has also gone up, making mortgages more expensive. 

The rising cost of borrowing affects mortgage holders differently, depending on the arrangement you have with your bank. 

If you have a tracker mortgage, your mortgage rates will immediately move by the same amount as changes made by the central bank. 

If you have a variable mortgage, sometimes called a discounted variable rate or a standard variable rate, your mortgage rate is strongly influenced by changes the central bank makes, but it is ultimately your bank’s decision. 

For both tracker and variable rate mortgages, it is likely your mortgage will become more expensive as interest rates rise. 

This is different to a fixed rate mortgage, where the interest rate doesn’t change for an agreed period of time. If you have a fixed rate mortgage, you could currently be sheltered from recent interest rate rises. However, it is possible that your mortgage will become more expensive when the fixed term ends. 

If you are struggling with your mortgage repayments, please contact us.