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11/08/15
Source: http://www.bbc.co.uk/news/business-33786528

Borrowers must prepare now for a rise in interest rates, a charity says, with over a million homeowners never having experienced a Bank rate increase.

Mark Carney, the Bank of England governor, last week said that a rise in the Bank Rate was "drawing closer".
The Money Advice Trust said this offered only a "short window" for people to organise their finances.
More than a million mortgage holders have only ever owned a home when rates were falling or frozen at 0.5%.

Timing
Mr Carney said that the exact timing of the first rise in the Bank Rate could not be "predicted in advance". The decision would be determined by looking at economic data.

Some analysts had thought a rise could have come at the turn of the year, but they are now expecting a possible increase in spring from the Bank Rate's record low.

Whenever it comes, it will be a new experience for more than a million homeowners making mortgage repayments, according to the Council of Mortgage Lenders (CML).

The last rise in the UK Bank Rate was an increase to 5.75% in July 2007.

About 1.8 million homeowners have taken out a mortgage for a new home since then, the CML said, although some would have owned previously then left the market.

'Short window'
Many people with debts, most notably a mortgage, could face extra costs when the Bank rate rises, the Money Advice Trust warned. For many of those with home loans, the rising cost would hit when their current deal expired.
"There remains only a relatively short window for households to prepare for the impact that higher interest rates will have on their finances," said Jane Tully, head of insight at the Trust, which runs the National Debtline.
"Rising interest rates will affect renters too, as many private landlords will pass on their higher mortgage costs to their tenants.
"Households need to look at their finances now, to make sure they can absorb these extra costs. Crucially, now is the time to act if you are worried about your ability to meet your repayments."
Research by Policis, for the CML, suggests that many homeowners have been taking a safety-first approach to their debt since the financial crisis.
"Given the importance of home ownership it is perhaps unsurprising that homeowners, overwhelmingly, regard paying the mortgage as their number one financial priority. Some 69% say that this is the case, substantially ahead of any other category of expenditure," the report said.

Short-term changes?
The 0.5% Bank Rate has been at a record low since March 2009, but the cost of mortgages has been falling during that time.
The latest minutes of the Bank of England's Monetary Policy Committee noted that lenders "did not expect mortgage interest rates to fall much further".
In fact, it said that banks' funding costs, an important influence on mortgage rates, had risen since May and "it was possible that mortgage rates would shortly begin to rise".
Views from within the industry suggest that homeowners and potential first-time buyers should keep a close eye on the situation, allowing them to decide whether to go for a fixed-rate deal and for how long.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "History shows us that most borrowers wait until rates are actually rising before making a move to remortgage. Of course, by that point fixed rates will be much more expensive than they are now."
But Aaron Strutt, of Trinity Financial mortgage brokers, said: "Unless something drastic happens to the UK economy, it is unlikely mortgage rates will rise significantly until the Bank of England actually increases the base rate.
"The price war is still very active."
Any rate rise, when it does come, is likely to be gradual, the Bank of England has said.

Those who have already paid off their mortgage or are paying for a home in cash in full are far less concerned about any rate rise.
Housing commentator Henry Pryor estimated that 40% of buyers each month did not need any mortgage finance, and were known as cash buyers.
"These people are not concerned by the threat of rising interest rates, they could rise to 15% and it would have no direct impact," he said.
"Traditionally when house prices started to run away, or there was too much froth, generally raising rates would dampen the market taking the heat and enthusiasm with it. Today a significant proportion of the market now waves two fingers at [the Bank on] Threadneedle Street.
"Where rising rates may bite however is the buy-to-let market, already pinched by changes in the summer Budget."

 
09/08/15
Find out what will happen to monthly outgoings if interest rates rise by 0.5 percentage points a year
source: http://www.telegraph.co.uk/finance/property/11788731/Your-mortgage-repayments-when-interest-rates-rise.html

The prospect of an interest rate rise is upon us.

The Bank of England took the drastic step of lowering the base rate to 0.5pc in March 2009, and it has remained there ever since.

That has afforded homeowners and buyers the opportunity to borrow cheap money at historically low rates of interest. This, combined with a battle among lenders to win over customers, has resulted in some astoundingly favourable mortgage deals. But such perks of UK economic policy look set to disappear.

While the central bank has signalled that it is unlikely to raise interest rates this year, as the strong pound and further falls in commodity prices keep inflation “muted”, the base rate is now expected to rise in the early part of next year.

So, what will a rate rise do to your mortgage repayments?

The property group JLL has taken the average house price for each region of the UK and analysed three scenarios based on loan-to-value ratios of 90pc, 75pc and 60pc.

Residential analyst Nick Whitten studied current monthly mortgage payments at the best available, variable market rates and projected the increase should the base rate move up incrementally.

The biggest jump in monthly payments is for a Londoner with a 90pc loan-to-value mortgage. Under this scenario, the borrower's monthly outgoings would increase by nearly £500 by 2018 as the relevant mortgage rate hits 5pc.
For someone living in the capital with a loan-to-value of 75pc, monthly payments would jump by nearly £400, and those with a 60pc loan-to-value would be charged an extra £296.

For the average UK homeowner, the most significant jump will be felt by those with a 90pc loan-to-value mortgage. Their monthly payment will increase by £189 in 2018.

Of course, this doesn't take into account more dramatic hikes, as highlighted by the economist Roger Bootle this week in the Telegraph.

Nick Whitten, director at JLL, said: “For the best part of a decade homeowners have not had to face increased monthly mortgage payments triggered by a rise in the Bank of England base rate.

"However, Bank of England Governor Mark Carney has warned of a rise in interest rates from the record-low 0.5pc, potentially by the end of 2015. Rates are likely to rise slowly at around 0.5 percentage points per annum peaking at around half the historic average of 5pc by 2018.

"This will have a knock-on effect on mortgage rates with increases particularly hitting homeowners with high loan-to-value variable or tracker mortgages. Although there has been a recent return to real wage growth across the country, household spending will need to be adjusted to ensure rising payments can be made.

"An increase in interest rates could also have a dampening effect on the ability of aspiring homeowners to purchase, however this is likely to be offset by higher wage growth and greater job security.”

 
01/05/15
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