Posts with tag: base rate

Interest Rate Hike won’t Affect Average Homeowner

Published On: November 1, 2017 at 9:03 am

Tags: Bank of England,base rate,finance,interest rates

An interest rate hike won’t affect the average UK homeowner, according to a leading property market expert.

The Founder and CEO of online estate agent eMoov.co.uk, Russell Quirk, claims that UK homeowners have little to worry about if an interest rate hike is introduced this week.

Property owners have enjoyed record low interest rates since they were slashed to 0.5% in 2009 and then further squeezed to 0.25% after the EU referendum last year.

But, with the economy outperforming wider predictions, it is highly likely that an interest rate hike will be brought in this Thursday (2^nd November 2017), after the Bank of England (BoE) indicated that it was coming in the next few months back in September.

If rates do rise, eMoov reassures UK homeowners that they have little to worry about, as the result is unlikely to affect them financially.

Quirk explains: “If interest rates do increase this week, it is likely to be marginal to say the least and probably no higher than a return to 0.5%, which is actually the norm.

“This slight hike is designed to counter the rising level of inflation and will increase the monthly cost of some mortgages, in particular, variable rate loans and tracker deals.”

He continues: “But any increase in monthly payments, like interest rates themselves, will be marginal and manageable for those impacted. On the typical £150,000 loan, homeowners will be out of pocket around £15 to £30 a month, certainly no grounds to shout financial meltdown.

“I’m old enough to remember the unprecedented cost of money at a whopping 15% in 1989, resulting in homeowners posting their keys back to banks through their letterboxes. We’re leagues away from such a suffocating level and must not mistake this week’s likely tweak with anything more sinister or prohibitive.”

Quirk concludes: “House price growth and the market’s overall stability have been incredibly resilient despite the EU vote and a snap General Election. A few quid added to the average mortgage repayment will not deter this growth in the medium to long-term.”

Although you can be reassured by this news, it is always worth considering how an interest rate hike would affect you. Seek expert financial advice if you are concerned.

Variable Rate Mortgage Borrowers to be Hit by Higher Charges if Rates Rise

Published On: October 24, 2017 at 8:00 am

Author: Em Morley

Categories: Finance News

Tags: base rate,interest rates,mortgages,variable rate mortgages

Variable rate mortgage borrowers could have to collectively pay an extra £82.8m in higher payments in December if the Bank of England (BoE) raises the base rate by 0.25%, according to online mortgage broker Trussle.

If the Bank’s Monetary Policy Committee (MPC) announces a 0.25% base rate rise on 2^nd November, as is widely expected, most UK lenders will pass the full increase onto their customers within a month, based on historical lender behaviour.

In this scenario, the average variable rate borrower on a repayment loan would see their monthly payment rise by £16.56 – that’s £82.8m across the UK.

Variable Rate Mortgage Borrowers to be Hit by Higher Charges if Rates Rise

On an annual basis, these variable rate mortgage borrowers would see their payments increase by £198, or a total of £990m.

While most new home loans are on fixed rate terms, there are five million UK variable rate mortgage borrowers, who are on rates that move up and down with the base rate set by the BoE.

A borrower may be on a variable rate because they opted for one when securing their mortgage, or if their initial fixed rate lapsed onto their lender’s Standard Variable Rate (SVR) – three million people are currently in this position, mostly because they didn’t switch at the right time.

Variable rate mortgage borrowers in London, where the average outstanding mortgage value is around £243,000, will be hit hardest by a rate rise. A London-based borrower with 20 years left on their mortgage, currently paying an interest rate of 2.25%, would see their annual charges increase by £336 if rates were to go up.

The last time the base rate was changed was on 4^th August 2016, when the MPC cut the rate from 0.5% to 0.25% – the first change in almost a decade.

Of the lenders monitored in Trussle’s 2016 Lender League Table, 53% had dropped their rates in line with the BoE within a month of the rate change, including four of the six biggest lenders.

In anticipation of a rate rise next month, more than 20 lenders have already raised their rates, several by a full 0.25%.

Further research has also suggested that buy-to-let mortgage rates are creeping up.

The CEO and Founder of Trussle, Ishaan Malhi, comments: “It’s looking ever more likely that the BoE will raise interest rates, either in November or December. This will impact anyone on a variable rate mortgage. While the increase is only likely to be small at first, borrowers on variable rate deals should consider how they’ll cover the extra cost, especially those on a tight budget or with a large outstanding mortgage.

“With more rate rises potentially on the horizon, those nearing or beyond the end of their initial mortgage term should be thinking about switching to a more competitive deal. Because of the perceived complexity of getting a new mortgage, many people tend to this put this task off. As a result, a quarter of mortgage borrowers in the UK have ended up on their lender’s SVR, paying far too much interest. The process of switching has never been easier than it is now, so we urge borrowers to take action sooner rather than later.”

How will you be affected if the base rate rises over the next couple of months?

Bank of England Hints at Rate Rise in “Coming Months”

Published On: September 15, 2017 at 9:01 am

Author: Em Morley

Categories: Finance News

Tags: base rate,interest rates,mortgages

The Bank of England (BoE) has said that higher inflation and a pick-up in growth could lead to a rate rise in “the coming months”.

Members of the Bank’s nine-strong Monetary Policy Committee (MPC) voted seven to two to keep interest rates on hold at 0.25%.

Bank of England Hints at Rate Rise in “Coming Months”

But the MPC was talking in much stronger terms about a rate rise, analysts said.

The pound climbed more than 1% against the dollar to $1.3363 after the BoE’s announcement.

The Bank’s Governor, Mark Carney, comments: “The majority of members of the MPC, myself included, see that that balancing act is beginning to shift, and that in order to… return inflation to that 2% target in a sustainable manner, there may need to be some adjustment of interest rates in the coming months.

“Now, we’ll take that decision based on the data. But yes, that possibility has definitely increased.”

In minutes of its latest rate decision, the MPC said there was a “slightly stronger picture” for the economy since its forecasts last month, thanks to signs of a firmer housing market, stronger employment, and a rebound in retail and new car sales.

The nine policymakers on the panel believed “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”.

The Director of mortgage broker Private Finance, Shaun Church, comments on the latest news: “Over 2.2 million first time buyers have bought a home with a mortgage and benefitted from low mortgage costs since interest rates fell to 0.5% in March 2009.

“Although the BoE hasn’t raised rates this time around, the message is clear that consumers should be aware this might happen sooner than expected. When rates do eventually rise, it will be the first time over two million people have experienced this as a mortgage holder, and more rises are likely follow.”

He continues: “However, while today’s rock bottom mortgage rates can’t last forever, further base rate rises are likely to be gradual and mortgage rates won’t necessarily rise at the same rate. Healthy competition between lenders should ensure that mortgage pricing remains low for some time yet. Homeowners therefore have plenty of time prepare for a slight increase in pricing in the coming years.”

Ishaan Malhi, the CEO and Founder of online mortgage broker Trussle, adds: “With the BoE once again choosing to hold interest rates at 0.25%, anyone with a mortgage should be thinking about how they can take advantage of the situation. Borrowers should check what level of interest they’re paying on their mortgage and whether they could save money by switching to one of the more competitive deals on the market. Switching mortgage can now be done on a mobile in a matter of minutes, whether that’s on the bus to work, or waiting for the kettle to boil, and could shave hundreds of pounds off the average household’s monthly outgoings.

“Rock bottom interest rates offer the perfect opportunity for homeowners to overpay on their mortgage, increasing equity in their home and bringing down their debt. It’s easier than ever to stay on top of your mortgage, and the rewards for proactively managing it can far outweigh savings made by switching energy or internet provider. At a time when prices are rising and wages are struggling to keep pace, now’s the time to dust off that old mortgage statement and see what else is out there.”

We will keep you updated of any changes to interest rates at Landlord News.

BoE Keeps Interest Rates on Hold Despite Inflation Fears

Published On: August 4, 2017 at 8:08 am

Author: Em Morley

Categories: Finance News

Tags: Bank of England,base rate,finance,interest rates,mortgages

The Bank of England (BoE) has kept interest rates on hold, despite fears surrounding inflation, according to minutes from its meeting yesterday.

The Bank has warned households to expect interest rates to rise over the next year, but also predicted that living standards will be squeezed by higher inflation and sluggish wage growth.

The BoE’s rate-setting committee voted by six to two to leave official borrowing costs at their all-time low of 0.25%.

New economic forecasts released by the Bank at the same time cut the outlook for UK GDP growth this year and next, and painted a weaker picture for earnings growth. However, the Bank appeared to send a clear message that businesses and households should not expect borrowing costs to stay at their record low for much longer.

The meeting minutes noted that if the economic picture evolved as the Bank is predicting, interest rates could be raised by more than financial markets are currently pricing in. Those market expectations are for two rises to 0.5%, then to 0.75% over the next three years.

The minutes said: “If the economy were to follow a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.

BoE Keeps Interest Rates on Hold Despite Inflation Fears

“All members agreed that any increases in Bank rate would be expected to be at a gradual pace and to a limited extent.”

Key points in the BoE’s economic forecasts included:

GDP growth is now expected to be 1.7% in 2017 – down from the 1.9% predicted in May.
GDP growth in 2018 is expected to be 1.6% – down from the 1.7% forecast in May.
2019 growth was left at 1.8%.
Inflation in the third quarter (Q3) of this year is expected to average 2.7% – up from the 2.6% predicted in May.
Average earnings growth is predicted to be 2% in 2017 – unchanged from May’s forecast.
2018 earnings growth was cut to 3% from 3.5%, and 2019’s from 3.75% to 3.25%.

The decision to leave interest rates unchanged was as the vast majority of City economists had expected. However, some analysts had seen a small chance of a rate rise this week, following comments from the Bank’s Governor, Mark Carney, and other committee members that they were more open to higher rates to keep inflation in check.

Price pressures have risen since the vote to leave the EU last year knocked the pound sharply lower, thereby increasing the cost of imports to the UK. The Bank warned that this currency effect on inflation would continue to play out over coming years.

Two members of the Monetary Policy Committee (MPC), Ian McCafferty and Michael Saunders, wanted to put rates back to 0.5% immediately to curb inflation.

The Government set the BoE an inflation target of 2%, but the rate is currently above this, at 2.6%, with policymakers expecting it to pick up and peak around 3% in the autumn on the consumer price index (CPI).

But the other six members of the MPC felt it was better to wait before reversing the emergency cut it made to borrowing costs in the aftermath of last June’s Brexit vote.

Outlining the two sides of the debate over a rate rise, the minutes said: “There were arguments in favour of a moderate tightening in monetary policy now. CPI inflation was substantially above the target, and was projected to remain above the target throughout the three-year forecast period.”

On those wanting to hold rates, they added: “There were also arguments in favour of leaving the policy rate unchanged. GDP growth had been sluggish and was expected to remain so in the near-term. With some business survey expectations balances having weakened, there remained the possibility of a further softening in activity.”

The Director of chartered surveyor e.surv, Richard Sexton, comments on the decision: “One year on from the MPC’s historic rate cut, and the BoE has decided to keep the base rate at 0.25%. However, with the current political and economic uncertainty, it is not a question of if, but when will, rates eventually rise. It’s interesting to consider that for many current mortgage holders, they have never experienced a rate rise and the impact of any payment shock is unknowable at this time.

“Low interest rates coupled with rising house prices have led to borrowers struggling to save deposits and, instead, many are having to borrow larger amounts of money to get onto the housing ladder. e.surv’s latest Mortgage Monitor shows that June was the fifth successive month where large deposit borrowers accounted for less than 35% of the overall market. With more people taking on larger loans, an interest rate rise will be felt first in this segment of the market.”

Ishaan Malhi, the CEO and Founder of online mortgage broker Trussle, has also reacted to the news: “The BoE’s decision to hold interest rates has direct implications for every household, positive and negative. For existing homeowners, sustained low interest rates are good news because they keep mortgage repayments level. In this situation, we’d recommend borrowers review their mortgage to check if they’re on the right deal, should switch to a more competitive fixed rate deal, or even begin making overpayments to bring down their overall debt burden.

“Taking the time to review your mortgage is essential, especially as an estimated two million mortgage borrowers in the UK are on Standard Variable Rates, overpaying an average of £4,900 per year compared to a market leading deal. For those saving for a deposit, sustained low interest rates are bad news, since their savings will continue to grow slowly. The glimmer of hope, particularly for first time buyers, is that housing prices have begun to slow, making some areas that were previously unaffordable more accessible.”

Will Interest Rates Finally Start to Rise this Year?

Published On: July 31, 2017 at 8:14 am

Author: Em Morley

Categories: Finance News

Tags: base rate,finance,interest rates,mortgages

Last August, the Bank of England’s (BoE) base rate was cut to a record low 0.25%, down from a previous all-time low of 0.5%, where it had remained for more than seven years. But will interest rates finally start to rise this year?

The prospect of an interest rate rise in 2017 has been in the media a lot lately, so will it happen?

Portico estate agent recently attended a talk by the Economics Editor of The Sunday Times, David Smith, who gave his expert view on when he expects interest rates to rise and by how much…

Firstly, he gave his thoughts on the long-term future of interest rates: “It’s a very timely question. We sometimes forget how unusual a period we’re in for interest rates. It is ten years since we had the last increase in interest rates, so we’ve been on these ultra-low rates for a very long time.

“The BoE reduced the bank rate to 0.5% in March 2009 and, until the financial crisis of 2008/9, the bank rate had never been below 2%. Of course, we saw the reduction to 0.25% in August following the referendum and, within that, we’ve also seen a narrowing of margins, so mortgage rates have come down quite a lot, even in a period where official interest rates stayed.”

So why is the subject of interest rates a timely question?

“It’s a timely question because just last Thursday, the BoE was the closest it has come to an interest rate rise for quite a long time. Three members of the eight-strong committee voted for an increase in interest rates.

“And they did so because they fear that the rising inflation that we’re seeing is proving to be a little powerful. The Bank expected inflation to peak below 3% and now I think it’ll go above 3%, so it might be a bit more enduring than they expected even a month or so ago.

Will Interest Rates Finally Start to Rise this Year?

“The three officials who voted for an increase in interest rates were all external members of the embassy – in other words, they’re not the insiders like Mark Carney and his deputies, all of whom voted to keep interest rates on hold.”

Smith has one certain outlook for the near future: “I think it is quite likely that, in the coming months, at least one thing will happen: the emergency rate cover we had after the referendum will be reversed. It was responding to a danger that, in the end, wasn’t there. The economy didn’t fall off a cliff after the referendum – in fact, it held up very well, so I think the argument for reversing emergency rate cover is quite a strong one.”

So when does he think interest rates will rise?

He explains: “Look at the way the markets have interpreted the Bank’s vote; until recently, the expectation in the markets was that you wouldn’t see any increase in interest rates until beyond 2020. Now, the expectation is that it will be brought forward and we will probably see an interest rate rise next year – and it could come sooner than that. I envisage a situation where the cut in August last year will be reversed, maybe not as soon as August, but possibly by November this year.”

And what happens beyond that timeframe?

“Well, the guidance we’ve had from the Bank is that interest rate rises will be both gradual and limited. In other words, they will be done, as the Federal Reserve is doing in America, in baby steps, in a very gradual fashion.

“Where we’ll end up in terms of official interest rates, and, of course, you have to translate that into the interest rates that you actually pay, will be a new norm for bank rate of around 2%. I expect we won’t get there for two or three years, but that is the kind of guidance that we’ve had from the Bank of England. This compares with an average of 5% before the financial crisis, and it compares with an average of 12% we had in the 1980s.

“Despite it still being a low figure, it’s still quite an adjustment to move from 0.25% to 2%, even gradually, so it will mark quite a significant change for many people.”

Smith expands: “Once you get to 2%, I don’t see that we’re suddenly going to move back to the levels that scared us so much in the past. For the foreseeable future, I don’t think we’re going to see double figure interest rates; I think this low, single figure will be the norm, and I expect to see it throughout the 2020s.

“Something is starting to stir on interest rates that wasn’t necessarily expected and we will see a gradual move over the next few years up to 2%.”

In terms of buying property, what exactly does this mean?

He clarifies: “The rate increase will be slow and gradual over the next few years, when it eventually begins, so I don’t think anybody needs to react today. Plus, with the mortgage market still very competitive, the knock-on effect to rates available to purchasers will not be hard felt, at least not initially.

“That said, even a 0.25% increase can add a significant cost to a mortgage. For most people, the cost of living is already tight, so if you want to get a foot on the property ladder or make that significant step up, now is a great time to lock in a good rate.”

If you already own a property, Smith advises fixing your mortgage rate now: “I have had friends and colleagues who have stuck with a tracker mortgage under the belief that rates couldn’t increase in the short to medium-term. But this just isn’t true. Rates absolutely can rise, and they’re likely to, so if you have a great rate that is affordable to you and works with your circumstances, why not lock it in and have that peace of mind?

“Alternatively, if your current mortgage rate is coming to an end or you think you could get a better deal, consider remortgaging. But before you do, make sure you get your property re-valued. This will make your lender recalculate your loan-to-value, and a lower loan-to-value means a better interest rate and a larger choice of lenders.”

Will an increase in interest rates affect landlords or investors?

Smith says: “In the short-term, no. All lenders are now stress testing buy-to-let mortgages at 5.5%, so an increase is already factored into the lending and affordability. Most investors will also have planned or accounted for some sort of rise in their budgets.

“Nonetheless, as the rates gradually get closer to 2%, landlords will be looking to offset this increase and one of the obvious ways for this is via a rent increase. This is more market driven in terms of available housing and demand from tenants first and foremost, and this is what will lead rental prices over the coming years.”

Whether you’re a landlord, homeowner or aspiring first time buyer, how would a rise in interest rates affect you?

BoE Freezes Base Rate at Record Low 0.25% for Another Month

Published On: February 3, 2017 at 10:11 am

Author: Em Morley

Categories: Finance News

Tags: Bank of England,base rate,economy,interest rates

The Bank of England (BoE) has frozen its base rate at a record low 0.25% for yet another month.

BoE Freezes Base Rate at Record Low 0.25% for Another Month

The Monetary Policy Committee voted to keep the record low 0.25% rate on hold, with the economy performing much better than most experts predicted in the wake of last year’s Brexit vote.

The base rate was originally cut to a record low 0.25% in August last year

Financial markets forecast a 50% chance of a rate increase by December this year, although many economists now believe it could be much later.

That said, a rise isn’t set in stone, with the Governor of the BoE, Mark Carney, suggesting last month that the rate could even be cut further.

The economy has grown by 0.6% in each of the past three quarters, contradicting predictions by experts, including those at the Bank, of a sharp decline after the vote to leave the EU.

The BoE, which had warned that a Brexit vote could tip the UK into recession, has increased its growth forecasts since the EU referendum, with its latest quarterly inflation report expected to show a further nudge upwards for 2017.

So how will the record low 0.25% rate affect property owners and buyers?

The CEO of eMoov.co.uk, Russell Quirk, explains: “Today’s decision is great news and will no doubt boost both UK buyers and sellers, as well as the wider economy. It also acts as validation that the overall market stability seen throughout 2016 should carry on well into 2017, with the UK property market remaining in good health.

“With interest rates remaining as they are, the wider availability of affordable mortgage rates should further encourage buyers that now is as good a time as any to get that first foot on the ladder.”

He continues: “Some may even argue that a slight cooling in property values across the nation isn’t such a bad thing, and will further aid struggling buyers and help to partially address the growing housing crisis in the UK, although those already on the ladder may not share such a view.

“But a word of warning: those looking to buy should still do so wisely and not be encouraged to buy beyond their means due to today’s further rate freeze. It is inevitable that, at some point, interest rates will increase, and the normal rate being enjoyed currently could increase to 3-4%. Should this happen, those that are ill-equipped to deal with the escalating financial costs will find themselves in a very tough predicament.”

What do you think of the rate freeze?