UK Interest Rates to rise for the first time in 10 years
For the first time in more than 10 years, the Bank of England has raised interest rates.
The official bank rate has been lifted from 0.25% to 0.5%, the first increase since July 2007. The Bank’s nine-member Monetary Policy Committee which sets the base rate voted by 7-2 to increase the rate. It said it had raised the rate in a bid to lower inflation to the 2% target, after the Consumer Prices Index, a key measure of inflation, rose to 3% in September.
The consensus is that there will be at least another 0.25% rate rise next year, and possibly a second. That will take Bank of England base rate to 1%. In the longer term there is talk of the Bank of England normalising rates after the most abnormal decade in its history. But few mainstream economists expect the new normal to be much above 3%.
What will this mean for Home Owners?
A move in rates, however small, will have an immediate impact on household finances. Nationally, 57% of homeowners are on fixed-rate deals, so only 43% are immediately affected by a rate rise. However, if the Bank eventually increases rates to what many say will be the new normal of 3% then the average borrower is likely to be landed with a monthly bill of £1,023 or £260 more every month than what they are paying now.
Those 43% of mortgage borrowers on variable and tracker rates face higher monthly bills after the base rate rise, where rates are likely to rise for existing borrowers from December.
Subsequently, brokers anticipate a surge in borrowers signing up to fixed-rate deals and greater demand for longer fixed deals of five years.
What will this mean for Property Investors?
For buy to let landlords with an existing mortgage, unless you are locked into an existing fixed rate, a mortgage rate increase from the lender may result in more expensive monthly mortgage repayments. As a result, landlords may be forced to increase their rent which could prove unaffordable to current or potential new tenants. A knock-on effect of this could result in an increased number of investment properties becoming or remaining vacant as they are unaffordable. Subsequently, landlords may be unable to sustain the mortgage payments on these properties leading to high levels of arrears or property repossessions. Post the last property crash in 2007, we witnessed a surge in repossessions right across Ireland and the UK, and although this increase should not open the floodgates, it will certainly have this kind of an impact on some landlord’s who are currently holding onto their properties by their fingertips.
What should I do?
Check your mortgage paperwork to determine and understand your mortgage agreements and make financial plans now for this rate increase. It always amazes us at GDPEE that many of the people we see in this scenario, never look at their mortgage agreements and many don’t understand what kind of mortgage product they have committed to. Remember this is one of the most important agreements you will commit to in your entire lifetime.
Undertake a financial review of your finances. If you know money is tight, spend some time now, today, tonight, this weekend, working out how tight things are going to be over the weeks and months ahead. Knowing what cash you have to spare can help you start to put a little aside to cover you if something goes wrong or your monthly bills are to increase.
ASK FOR HELP - Try not to wait any longer, if you have a financial issue, or are concerned about any of the matters mentioned in this piece, simply ASK FOR HELP NOW.
What we can do to help?
Since 2010, GDP Equity Experts have helped 100’s of families deal with debt related issues and in particular property debt related issues. We would be very concerned at this point as we know over 600,000 people are currently living in negative equity and many are already struggling month to month to keep up with their mortgage payments. Therefore, this increase in interest rates could be detrimental to a lot of households.
As a result, it is very important to take advice in this regard from a regulated team of debt advisors to plan for the future.
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