Further Interest Rate Rises Possible
If having a mortgage is sometimes described as being on a rollercoaster ride, then homeowners are definitely still firmly on the upward drag at the moment. Economists have warned UK homeowners that May’s interest rate rise is unlikely to be the last one in 2007.
With the Bank of England rate now at 5.5%, its highest level for six years, following four quarter-point rises since August 2006, many borrowers are already stretched to their limit. But economists warn that the worst is probably not yet over.
The minutes of the Bank of England’s Monetary Policy Committee for May show that members gave consideration to raising the rate by half a point, rather than the quarter point eventually settled upon. If this had been the case, it would have been the first occurrence since the Bank was allowed to set the rate independently, when Labour came to power in 1997. Only quarter point changes have been seen in that time.
Homeowners have suffered from the cumulative effects of the four quarter-point rises, which have added almost £1,200 per year to repayments on a typical £150,000 mortgage.
City economists are already forecasting a 5.75% rate to come at the June meeting, and 6% rates will probably follow in August. With the latter rate those with mortgages of £150,000 will have to find another £50 a month on top of what they’ve already had to find since rates started rising last August.
The Bank’s Monetary Policy Committee is concerned about the continuing rise of inflation. The Bank has a primary duty to keep control over inflation, but it hit 3.1% in March – the highest level since 1992. Although it fell away to 2.8% in April, the Chancellor has set a target of only 2%, so there is still some way to come down to that level. There are also still fears that the housing market is continuing to rise without firm foundation which could lead to a fall, and further problems for the economy. All nine members of the committee voted for the rise to 5.5% in May, and expressed their concerns over inflation, with further bank rate rises mentioned as being possible.
Homeowners are coming under increasing pressure to meet the increases to their repayments. With many also having large credit card debt, many consumers are reaching breaking point. In 2006 house repossessions were already at 17,000, a rise of 65% on the previous year. The impact of the rate rise on this figure can only be guessed at.
Many people have pushed themselves to the limit just to get a mortgage to buy their home, with prices at record levels, and 100% mortgages available.
Fixed rate mortgages are becoming increasingly popular as people try to fix their repayments for a reasonable length of time. Figures from the Council of Mortgage Lenders show that in March 80% of mortgages taken out were at a fixed rate. But these come at a price. Fees of up to £2,500 have been seen as mortgage lenders cash in on the rush.
Tom Smith
4th June 2007
Recent Mortgage News:
- Interest rate rise exceeded by some lenders [04.06.07]
Over the past year mortgage holders on variable rate mortgages have really felt the pinch, with no fewer than four interest rate rises being enforced by the Bank of England since August of last year.
- Number of landlords set to increase [03.06.07]
According to recent reports the number of buy to let landlords in the UK could increase by one hundred percent over the next three years, with a rising demand for rental properties seeing an increased number of consumers expressing an interest in purchasing a property with a view to renting it out.
- Slow down in mortgage lending [01.06.07]
According to recent reports released from the Council of Mortgage Lenders, mortgage borrowing appears to have slowed down over the past month compared to the previous month, indicating that the housing market may be showing signs of cooling.
More Information:
- What Are Tracker Mortgages?
With a multitude of mortgages available what are the benefits and disadvantages of the product known as a tracker mortgage?
- Why Does The Interest Rate Of Your Mortgage Change?
The biggest difference between a mortgage and other types of loan is the fact that the interest rate changes throughout the term of the loan. Why is this? And which type of interest-rate arrangement is best?
- Choosing The Right Mortgage
The market is flooded with different types of mortgages, but how do you know which one is right for you? The decision has to be yours, whether you take advice from an Independent Financial Advisor or do your own research.
- Different Types Of Mortgage
Rather like a full house in poker there seems to be a wide selection of mortgages on the market, but aren’t many of them the same kind of product?
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