Those looking to purchase their own property, or even increase a buy to let portfolio, tend to keep an eye on mortgage interest rates, and act appropriately. But those in the market for a mortgage understand the value in a good deal, and with the possibility of a rate rise looming ever closer, many banks are reporting an increased interest from prospective borrowers.
Why Might It Go Up?
The history of interest rates is fascinating; between 1970 and 1992, interest rates fluctuated wildly, hitting anything from 5% to an eye-watering 17% before dropping down from 1992’s Black Wednesday when the British Government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM). It then hovered between 4% and 6% until the 2008 Financial Crisis which saw the rate plummet to just 0.5%. It has remained at that rate for the last 8 years – with a short reduction to 0.25% following the Brexit vote – and remains there now. However, the Bank of England is signalling that a rate rise is now needed, and the question is “when” rather than “if”.
The Bank believes that the economy is unlikely to reach pre-financial crisis growth rates anytime soon – if at all – and the expectation is that rates will rise to just 1%, in two incremental steps of 0.25%, with one probably being introduced next year and the second one in 2020. It is hoped that the rates will then stay at that level for some time, and while it’s not a huge leap, savvy investors are already considering how even such as small increase may impact investment opportunities.
What Will It Cost?
Consider a family with a £200,000 mortgage on their property and a 25-year term. They are likely to end up paying almost £25 a month extra if the rate goes up by 0.25%, which equates to almost £300 extra a year. This figure effectively doubles if the rate goes up by 0.5% to £600 extra per year and is the price of a week-long package holiday in Turkey for two from some travel agents.
If the rate goes up by one percentage point, then the cost would be just over £100 a month, or over £1,200 a year. A family with a £150,000 mortgage pays about £650 in instalments on a current rate of 2.24% – this rises by almost £19 a month with a 0.25% rise, £38 with a 0.5% hike, and £76 if the rise goes to a full 1%.
Getting a Good Deal.
Those are quite significant figures and those with their eye on property are looking to get into good deals now to stave off the initial effects of a rate rise. If a borrower can lock into a good two or three-year deal now, then they could end up saving a substantial amount of money long term.
However, while official figures show that new UK mortgage lending rose 4.9 per cent in February, this is actually a slight decline and while lending increased to £19bn last month, that is below the 2017 monthly average of £21.4bn. Meanwhile, re-mortgage approvals rose by 9 per cent in both number and value terms year-on-year in February, as the general public seek out the best deals.
If you are concerned about your current or future interest rate, then talk to us at Grange Mortgages to discuss your needs and the best deals.