WE’VE had six years of a base interest rate of 0.5 per cent, meaning lower mortgage repayments for many
WE’VE had six years of a base interest rate of 0.5 per cent, meaning lower mortgage repayments for many homeowners, writes Lucy Boon.
If you’ve bought your first home in this time you won’t have seen the years when the base rate was between four per cent and eight per cent, and even as high as 15 per cent.
We’re unlikely to see rates soar to those heights, but new research has shown more than half of borrowers would struggle if rates were to rise by one per cent in the next year.
One in 10 people asked by the Building Societies Association (BSA) were worried they would have serious financial problems if interest rates increased. One in seven felt they could just about keep up, and a quarter of people said they would struggle from time to time.
Of course, we’ve heard news that an interest rate rise is around the corner for more than a year now without it happening. But it could happen any time, and as such it pays to work out your situation before a change.
Talk has been around interest rates finally settling between three per cent to five per cent, so it may be a good idea to work out what that would do to your repayments. (If you have a fixed-term mortgage, it’s unlikely you’ll be affected until that period ends, but if you’re on a variable or tracker you’re likely to pay more after a rate change.)
At Romans, Vincent Courtney says: “Today’s marketplace is very much in the favour of sellers. However, I expect interest rates will begin to rise in 2016, reaching one per cent by the end of the year. We know it will have to happen soon and once the rates begin to rise I believe a lot of people who were sitting on the fence will decide to make their move.’
Those with large mortgages should perhaps take heed and plan for any increases in borrowing over the coming months.
The aforementioned BSA survey highlighted this by asking people how they’d cope with higher repayments.
One in four said they’d need to cut back on general spending, while one in five felt that included essentials.
A smaller number (five per cent) said they’d try to remortgage to a cheaper deal, while others (also five per cent) said they’d overpay a lump sum to reduce what they owed. Luckily, the rate rises are likely to be very gradual.
Simon Rubinsohn, RICS chief economist, says: “All the signals from the Bank of England still point to a very gradual upward trajectory for base rates when it eventually decides to move policy in this direction. A material rise in the cost of borrowing has the potential to take some of the momentum out of the market, but there is at this stage little indication that the Bank of England is minded to take a steer from the US Federal Reserve.’
Interest rates aside, competition between mortgage lenders is currently extremely fierce and people are getting some outstanding deals — whether they’re first time buyers, remortgaging or purchasing buy-to-let products.
As the smaller, specialist lenders continue to make their mark the competition will continue and new customers will benefit from exploring the market thoroughly or seeking advice from an independent adviser, in order to compete with rising interest rates.
• Standard Property is running its own local survey. To take part in this anonymous poll, please go to the Henley Standard’s Facebook page and follow the link — or visit the Standard Property Facebook page and find it there. The results will be published in a future issue.