When the Bank of England increased their base rate from 0.25% to 0.5% in November of 2017, many mortgage holders were forced to re-examine their mortgage payments and budget. This had been the first interest rate increase for more than a decade and property owners with a variable rate mortgage were facing an increase in payments.
Figures provided by the Nationwide suggest that the average increase for mortgage holders was £22 per month. Depending on a person’s personal finances, this may be quite a lot of money to find on a monthly basis. It is vital that mortgage holders examine their finances and make sure that they are comfortable with the increased payments that they have to make.
Fixed rate mortgage holders should review their finances
Even fixed rate mortgage holders should be looking at the future and ensuring their finances are in a suitable position. The biggest benefit of having a fixed rate mortgage is that you don’t have to pay more money each month if interest rates rise. However, once the fixed rate period is over, there is a need to switch to a new mortgage or the mortgage will be transferred to the lenders standard variable rate mortgage, which may lead to a significant increase in payments per month.
One issue that should be concerning for many property owners is the fact that there is likely to be further interest rate increases in the near future. Mark Carney, the Governor of the Bank of England has suggested that there will be two more rises in the next three years and some sources believe that there will be two further increases by the end of 2018. There is an expectation that the base rate may reach 1% by the end of 2018, which would be a notable increase from the level of 0.25% which was in place as of October 2017.
Some specialists believe interest rate increases are on the way
Investment and finance specialists at organisations like Tilney and Hargreaves Landsdown expect there to be an increase in 2018 but Paul Richards, who is the chairman of Insignis Cash Solutions, has stated his opinion that there could be two interest rate increases in the next year. While property owners are likely to see this as bad news, there are savers across the country who hope that these changes occur and that financial institutions pass these increases onto savers as full.
Of course, every specialist knows that many unforeseen things can happen to change their predictions. Brexit is still looming large and the property market received a fresh twist with the removal of stamp duty for first time buyers purchasing homes at less than £300,000.
All in all, there will be many people affected by interest rate changes and variations in the mortgage market in the New Year. It may even be that some people will find that they are no longer as eligible for a mortgage as they used to be. If lenders believe higher monthly payments will increase the risk associated with some applicants, it may be that fewer mortgages will be approved next year, and this will impact on the market.
If you are keen to stay in touch with the latest news and information regarding the property market, stay in touch with Regent Property.