The Bank of England has already made four quarter-point interest-rate rises since August 2006, leaving many homeowners hoping that fears of further rises this year would prove unfounded. After all, last month the nine-member Monetary Policy Committee (MPC) voted by a small majority to freeze interest rates at 5.5%. This week, however, the more monetarily aggressive members of the Committee pushed the vote the other way, with interest rates now rising to an eye-watering 5.75%. Even worse, many business analysts are predicting a further rise to 6% before the end of 2007.
For the average homeowner with, say, a £100,000 mortgage, each quarter-point rise in interest rates equates to an additional £16 a month, on average. That means that, over the past year, borrowers had already seen mortgage payments rise by around £64; with this latest rise, total payment increases will be nearing the £100 mark. And for those with larger mortgages, the financial impact may be far worse.
The last time we faced such interest rates was in 2001, but the difference today is that our debts are generally far higher. Consumer spend has become the mainstay of the British economy, to the detriment of the manufacturing industry, which has instead withered. The process has worked because we buy homes at cheap interest rates, then gear up against those homes to carry on spending. The result is that the country is now running on the highest level of debt ever.
GSEs, Mortgage Rates, and Secondary Market Activities [Adobe PDF]es are likely to create a social benefit beyond that provided by MBS and mortgage interest rate spreads at a monthly frequency for the ten-year period more hits from: http://www.federalreserve.gov/Pubs/FEDS/2005/200507/200507pap.pdf ::
es are likely to create a social benefit beyond that provided by MBS and mortgage interest rate spreads at a monthly frequency for the ten-year period
http://www.federalreserve.gov/Pubs/FEDS/2005/200507/200507pap.pdfHOME |
Financial review [Adobe PDF]Centrals approach to managing and mitigating specific. types of risk is as follows: The extent of Centrals exposure to interest rate changes more hits from: http://www.cucbc.com/pdf/cucbc_ar06_financials.pdf ::
Centrals approach to managing and mitigating specific. types of risk is as follows: The extent of Centrals exposure to interest rate changes
http://www.cucbc.com/pdf/cucbc_ar06_financials.pdfHOME |
In particular, favourable interest rates in recent years have encouraged many thousands of people to take out second mortgages, perhaps to reduce unsecured debt, pay for home improvements or help with the costs of looking after a family. If you are one of the many with a second mortgage, this latest Bank of England interest-rate rise will be doubly painful. In addition, if you are looking for new mortgage deals, you might face paying out as much as two interest points higher, at a time when disposable incomes are falling and the saving rate has been squeezed to its lowest in nearly 50 years.
Nor are those on fixed rate deals necessarily protected from the impact of the 5.75% interest rate. If you, like many hundreds of thousands of others in the UK, secured a two-year fixed rate mortgage in the summer of 2005, taking advantage of the then low interest rates, you may now be facing the shock of dramatic payment increases, as your fixed rate comes to an end and you are forced onto your lenders standard variable rate (SVR).
So is this all a tale of doom and gloom? Well, its certainly an uneasy time for first-time buyers and existing homeowners but there are still plenty of options in the market to ensure you get the best possible mortgage deal, despite the uncertainties. The most important thing is that you understand where the market is and where it is heading, and that you have contingency plans for possible interest-rate rises in the future. If you are a first-time buyer or you are looking to change mortgage, be sure to get the right advice to ensure you do not over-commit your finances. Using a comprehensive search service such as BeatThatQuote.com could also help you quickly and efficiently research available deals in the market, ensuring that you get the right mortgage for your individual circumstances.
Most of all, do not let any concerns you might have over possible future interest-rate rises force you into making hasty decisions or panic buys. Take the time to think through your options and balance up not only your finances with the mortgage deals on offer, but also consider carefully your lifestyle preferences and what financial security you need to live comfortably and stress-free. Take time out now to consider the market challenges and opportunities, and you will reap the rewards in future of both financial and personal well-being.
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To 5.75% and Beyond: Managing a Year of Interest-rate Uncertainty