Any Sudden Base Rate Rise Could Push Three Million Households Over the Edge
With millions of households in the UK on variable rate mortgages, the prospect of rising interest rates is a matter of concern to many. Whilst the Bank of England has kept interest rates at their record low of 0.5 per cent since early 2009, recent comments from the Governor, Mervyn King, have suggested that interest rates are set to rise sooner rather than later.
The FSA, who are the financial regulatory body in the UK, offers guidance in relation to the affordability of mortgage repayments. They state that the definition of mortgage affordability is the ability to maintain not only the current or initial level of repayments, but also future repayments should the monthly repayments increase due to increases in interest rates.
Statistics released by the Council of Mortgage Lenders (CML), a group representing nearly all of home loan lenders in the UK, shows that an increase in the cost of borrowing of 2% would result in 2.9 million homeowners struggling to pay their mortgages.
This news, linked with the other financial burdens currently mounting on homeowners, such as spiralling energy costs, heating bills and redundancy, has forced many to seek out more favourable remortgage rates.
Whilst fixed rate deals have proved increasingly popular over recent weeks, many borrowers are finding that the rates on these deals are not as competitive as they had hoped. As demand for fixed rate remortgage deals has increased, many lenders have hiked the rates on their fixed rate products.
Economists have commented that the surge in remortgage applications from homeowners wanting to fix their costs has caused the lenders to increase their interest rates prematurely, which has caused issues for many who are concerned of looming financial difficulty.
This means that many borrowers may have missed out on the lowest fixed rate mortgage deals. However, Mr Hollingworth points out that remortgage deals still represent excellent value when compared to rates in the past.
Statistics show that since the beginning of 2011, the average interest rate on a fixed rate contact has increase by almost half a percent, seeing significant increases in many homeowners monthly repayments.
As the demand for remortgages increases, lenders look set to continue increasing the cost of fixed rate deals. CML figures showed that remortgage approvals increased by 16 per cent between February and March 2011.
What is clear from this is that there are problems linked to each option and the everyday borrower should look to protecting his or her financial future by taking action now and seeking out advice from a professional mortgage broker or lender to make sure they access the best remortgage rates.
Howard O’Gollegos writes for Just Commercial Mortgages.com the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.