When the Bank of England announced that their base rate was increasing from 0.25% to 0.5%, it wasn’t much of a surprise. This was a move that had been highly tipped by many people but even then, the move left a lot of people wondering what it meant for the economy, for them and their mortgage.
There has been a difference of opinion about what the full impact of this change will be. There are people who believe it will halt optimism in the economy but there are also many who believe that this will stifle inflation, which is likely to be of benefit in the longer term. The impact on the overall economy is one thing but people want to know how it is going to affect their bank account and wallet on a monthly basis.
You can see why many fixed rate mortgage holders will not feel too concerned at this point in time. A major benefit of this style of mortgage comes with the fact that mortgage holders know exactly what they will pay each month. Of course, when the fixed rate agreement concludes, people may face paying a higher rate for their mortgage, so it is important that people understand this to limit the shock they face.
Therefore, the people who are most likely to face difficulties with mortgages at the moment are people who hold a variable rate mortgage. The Nationwide have released figures which suggest that anyone who holds a £175,000 mortgage with them, at their base mortgage rate (BMR) will end up paying an additional £22 per month. This is due to the payments of £763 per month increasing to £785 per month.
While there will be some people who don’t believe that an additional £22 a month is too excessive, there will be people who find themselves close to their financial limit. It is important that each individual focuses on their own budget and knows what they are confident with. Then again, no one can be happy at having to pay more, so there is likely to be a lot of people unhappy with these changes.
It is also important to note that it is expected that there will be further changes in the next couple of years. It has been strongly suggested that there will be two further interest rate increases before 2020, which could see people paying a lot more on a monthly basis.
With respect to how many people will be affected, a study undertaken by the Resolution Foundation suggests that 11% of UK households will be affected by this change. This compares well with the percentage affected in the last notable change, which saw 19% of UK households impacted on. The two key reasons for the drop in affected people have been cited as a fall in property ownership and an increase in the number of fixed rate mortgage holders.
There is no denying that this is a challenging time for mortgage holders, and it is essential that people are confident in their circumstances. Anyone looking for guidance or advice on how these changes impact on their mortgage and them, please come and speak to Gareth James.