The Bank of England base ratehassat at the historically low level of 0.5 per cent for over four years and there has been much discussion about when they will start to rise. It could be as early as 2015 or as late as 2017 but one thing is certain there is only one direction for it to go and that is up.
As house prices start to rise and the economy in generalstarts to recoverfinancial expertsarealready suggestingwhen this rate rise might happen. In some areas house prices are increasing at substantially more than the rate of inflation and recent research by property analyst HML has indicated that if the Base rate rose by 1.25 per cent the impact would be to put around 30,000 people into arrears within a year. A sobering thought.
So, how would the average borrower cope with an increase in their monthly mortgagepayments and what can you do now to prepare for the inevitable?
If rates rise gradually then the majority of home loan borrowers would be able to maintain their larger mortgage repayments even though it would have a negative impact on their disposable income. A rate rise could also generate an increase in demand for re-mortgaging to a better dealand possibly more borrowers seeking the security of a fixed rate deal.
The average mortgage interest rate (as opposed to the Bank of England base rate) for new mortgages is also currently at a record low for the UK of just 3.08 per cent so it would be sensible to plan now for a rate increase as further rate falls are highly unlikely to happen and now may be the best time to lock into a good fixed rate deal for your large mortgage repayments.
Research from Legal and General has revealed that approximately 90 per cent of borrowers are currently opting for a fixed rate product rather than a tracker or variable rate product. The lowestfixed rates are typically for a two year deal but this only offers security of payments for the period during which rates are expected to start rising, not for a longer period when rates will have risen significantly so itmakes sense to consider a longer term fix of three to five years. The rates will be higher but such a deal will provide more security.
Opting for a two year deal for a large mortgage will simply leave a borrower in the position of having to re-mortgage at a time when interest rates are likely to be higher than they are at the present time. With rates set to rise, another option to consider is overpaying your home loan while rates are still low. Even small overpayments can have a significant impact on both the interest payable and the term of the home loan, but if you are in any doubt seek specialist mortgage advice regarding your own particular type of mortgage. Overpaying now will also prepare you for the impact of higher rates within the next few years.
As house prices start to rise and the economy in generalstarts to recoverfinancial expertsarealready suggestingwhen this rate rise might happen. In some areas house prices are increasing at substantially more than the rate of inflation and recent research by property analyst HML has indicated that if the Base rate rose by 1.25 per cent the impact would be to put around 30,000 people into arrears within a year. A sobering thought.
So, how would the average borrower cope with an increase in their monthly mortgagepayments and what can you do now to prepare for the inevitable?
If rates rise gradually then the majority of home loan borrowers would be able to maintain their larger mortgage repayments even though it would have a negative impact on their disposable income. A rate rise could also generate an increase in demand for re-mortgaging to a better dealand possibly more borrowers seeking the security of a fixed rate deal.
The average mortgage interest rate (as opposed to the Bank of England base rate) for new mortgages is also currently at a record low for the UK of just 3.08 per cent so it would be sensible to plan now for a rate increase as further rate falls are highly unlikely to happen and now may be the best time to lock into a good fixed rate deal for your large mortgage repayments.
Research from Legal and General has revealed that approximately 90 per cent of borrowers are currently opting for a fixed rate product rather than a tracker or variable rate product. The lowestfixed rates are typically for a two year deal but this only offers security of payments for the period during which rates are expected to start rising, not for a longer period when rates will have risen significantly so itmakes sense to consider a longer term fix of three to five years. The rates will be higher but such a deal will provide more security.
Opting for a two year deal for a large mortgage will simply leave a borrower in the position of having to re-mortgage at a time when interest rates are likely to be higher than they are at the present time. With rates set to rise, another option to consider is overpaying your home loan while rates are still low. Even small overpayments can have a significant impact on both the interest payable and the term of the home loan, but if you are in any doubt seek specialist mortgage advice regarding your own particular type of mortgage. Overpaying now will also prepare you for the impact of higher rates within the next few years.