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Is this the end for cheap mortgages?

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Mortgage interest rates set to rise in 2016?

The last eight years have seen month after month of decrease or no movement in mortgage interest rates, so it’s no shock that news of a rate increase has stirred discussion and some concern.

The potential rate rise news, which came in the form of the Bank of England’s inflation report included the first hint at a potential interest rate rise in 2016.

Although not advice, we hope this article provides further information and addresses some of the questions you may have.

Only 4% of mortgage-holders vulnerable to a rate rise

 According to the rating agency Standard & Poor, the rate rise is unlikely to cause a wave of defaults. Only 4% of mortgage-holders are really vulnerable to an interest rate rise due to their total mortgage repayments exceeding 40% of their gross income. This suggests that the majority of mortgage-holders are not “maxing out” on debt when it comes to mortgages and would be able to afford a small increase.

The Bank of England report suggested that: As house prices have soared, those borrowers who would otherwise have taken on the most debt have decided to rent instead. At the same time, stricter rules that came into force last year have curbed excessive lending.”

These “stricter rules” are known to many as the upfront affordability check you go through when you apply for a mortgage. Mortgage applicants are required to discuss all their outgoings in detail to see whether they can afford a future rate rise. If this isn’t the case, they may be turned down for the mortgage.

Rate rises, if at all, will most likely be gradual

The last time the interest rate went up was in 2007 and for the last 77 months the Bank of England has held interest rates at 0.5%.

The economy is far from fixed and inflation plays a large part in any Bank of England decision. Also, any rate rises are likely to be carried out with extreme caution as any increase could have long-term impacts on the economy. With Britain’s target inflation rate at 2% and September seeing a 0% increase it’s likely that any increase will be gradual. This is reflected in the 1.7%, by 2018, rate projections from the Monetary Policy Committee (MPC).

Henry Knight, director of Springtide Capital, added, “Although some elements of the inflation report came as a surprise to some; a 2016 rate rise is likely to be gradual. There are many factors to consider and the economy still has a long way to go before it’s considered safe to increase the cost of lending.”

Projections from many experts have been wrong in the past so we’d always ask you to use caution when considering any information. It’s best to seek professional advice on your exact circumstances if you are concerned in any way. This article does not constitute as advice.

 

 

FCA
Springtide Capital Limited is authorised and regulated by the Financial Conduct Authority.

Important Legal Information
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances and loan amount. The FCA does not regulate most buy-to-let, second charge or commercial mortgages. The Financial Ombudsman Service is available at www.financial-ombudsman.org.uk or by contacting them on 0800 023 4 567. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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