News Rising mortgage rates: A November update
Published by Ben on 11th November, 2017
At the beginning of November 2017, the Bank of England increased their base rate by 0.25%, moving to a level of 0.5%. It is only natural that people want to know what impact this will have on them and what it means for their finances. It is important to be aware that an increase in interest rates isn’t universally good or bad for people or the economy. Some people will benefit, others will be negatively impacted and some people won’t be affected at all.
There is a difference in opinion about whether this change will be good or bad for the economy. Some economists believe that this move will stifle optimism and lead to a downturn in the economy where as other economists predict that this change is a positive one, believing that it will help to curb inflation. It is important that people are aware of how the overall economy is performing but for the majority of people, the most important issue is how it affects them in the pocket or their bank account.
Fixed rate mortgage holders should also be aware of the change
People who are currently on a fixed rate mortgage don’t have too much to worry about, as the nature of their mortgage protects them from these changes. However, anyone holding a fixed rate mortgage should be aware that when their current arrangement ends, they could be in for a “payment shock” if they are unable to re-mortgage in a satisfactory manner. Moving from a fixed rate mortgage to a lender’s standard variable rate mortgage can see a mortgage holder having to pay a lot more money each month, so if you do hold a fixed rate mortgage, make sure you when it is due to run out.
However, it is people who hold a variable rate mortgage who will be most affected by the rise in interest rates. Taking the Nationwide as an example, their base mortgage rate tracker had an interest rate of 2.25% and now the increase sees the interest rate standing at 2.5%. A mortgage holder with a £175,000 loan would see their monthly payments rise from £763 to £785, an increase of £22 per month.
Monthly mortgage payments likely to rise
This is deemed to the be the average increase for the most typical mortgage in Britain, so it is likely that many households will need topay an extra £22 per month in mortgage payments. Your reaction to this increase will be down to your own finances and budget. There will be some people who can comfortably manage this increase but there will also be people, who have already found themselves at the edge of their budget, who now have to make sacrifices to ensure they meet their mortgage payments in full each month.
It is essential that every mortgage holder examines their own circumstances and works out if there will be any change to their payments. It is then up to each mortgage holder to determine how comfortable they are with any additional amount of money they need. It is impossible for an article to suggest that the change will be suitable for a mortgage holder or not because everyone is different.
While the rise in interest rate, and mortgage rate, is amodest one, many people suggest that there isn’t too much to worry about at themoment. This may be true but with some specialists predicting that this rise is likely to be the first of many incremental increases, it is vital that mortgage holders plan ahead and ensure that they are prepared for changes with their mortgage payments.
With respect to how many people will be affected by the change, a study by the Resolution Foundation suggests that 11% of households in the UK will be affected in the short term. When a change occurred a decade ago,it was found that 19% of UK households were affected. There are two key reasons for the drop in affected households and these are the number of home ownership in the UK has fallen and many mortgage holders have a fixed rate mortgage in place.
It is not uncommon for increases in interest rates to have an eventual knock on impact on the property market but at this point, no one is willing to say by how much, if any. There are so many factors influencing the property market that one individual change by itself may not be enough to make a difference either way.
While many mortgage holders are facing up to higher monthly payments, people with savings are hoping that the rise in interest rates will lead to them getting a better standard of return from their investment. There is a need to see if individual financial institutions pass on the benefit to their customers but there is optimism that this will be the case.
There is no denying that the increase in the Bank of England base rate has been a big issue in the mortgage sector but as of November 2017, no one is really sure what the long term impact of the rise will be.