2018: Further Interest Rate Increases To Impact On Mortgages
It is fair to say that the increase in the base interest rate of the Bank of England has caused many people to re-evaluate their mortgage. The move from 0.25%, which was a historic low, to 0.5%, may be a small increase, and the first increase since 2007, but as many mortgage holders have seen their monthly mortgage payments increase, not everyone has been happy.
However, with the Bank of England dropping hints and suggestions that the base rate will increase further in 2018, perhaps with two separate increases, mortgage holders should brace themselves for further increases. Some sources suggest that by the end of 2018, the interest rate will stand at 1%, which will signify a notable increase compared to the October 2017 level.
Fixed rate mortgage holders can be happy for now
At this point, home owners who hold a fixed rate mortgage will be feeling pleased with themselves. After all, the key element to this mortgage lies in the fact that the monthly payments don’t rise if there is an increase in interest rates. This means fixed rate mortgage holders haven’t witnessed any changes to the amount that they pay each month in mortgage payments.
Looking forward, fixed rate mortgage holders should be aware that if they fail to switch their mortgage to a suitable option when their current deal ends, they could be in for a shock. However, that will lie in the distance for many property owners, and it is variable rate mortgage holders who have to reconsider their finances at this point in time.
Monthly payments have already risen for many mortgage holders
With the increase from 0.25% to 0.5%, people with a typical £175,000 mortgage will find that their monthly payments have risen by £22. For people with a mortgage of £400,000; the monthly payments will rise by around £51.
It would be wrong for anyone to say that an additional monthly payment of £22 or £51 is affordable or not. This is down to each individual or household to consider but clearly no one is keen to pay extra money if they don’t have. Even if a property owner believes the current increase is within their budget, the fact that interest rates are tipped to increase further next year should leave people feeling concerned about what they will be paying each month by the end of 2018.
It may not be possible for all variable rate mortgage holders to switch their mortgage, but it may be worth considering. However, with many lenders now having stricter criteria in place for mortgages, some property owners may find that they are unable to change their mortgage, which could see them paying considerably more each month as of next year.
Another issue that may impact the market is that the increase in interest rates may see some potential buyers being denied in their attempts to obtain a mortgage. Some lenders may deem that the higher repayment figures each month may make some applicants a risk not worth taking, and this will also have an impact on the property market.
It looks as though the Bank of England is likely to pursue a policy that sees interest rates rising further in 2017. This will lead to monthly mortgage payments rising, and it is important that people review their finances to ensure that they are comfortable with a higher payment level. Anyone looking to speak to property specialists about how the market is likely to change should get in touch with Villabela Properties.
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