With the Autumn budget just behind us along with the Bank of England’s decision to maintain the current base rate of 0.1%, the OBR ‘Office for Budget Responsibility’ told us to ‘prepare for the biggest hike in interest payments since the financial crisis,’ but is this simply ‘over dramatized speculation OR should we be concerned?
Following its decision to maintain the current base rate, the Bank of England muted that an increase in its base rate couldn’t be ruled out - in the near future. This is what lead to the dramatic statement by the OBR along with a suggestion that families get their finances in order. The OBR also stated that the UK economy was pitched to grow, during 2022, by 6.5% and that rising inflation could see the base rate increase to 0.75% by the end of 2023.
It’s unfortunate that this speculation has prompted mortgage lenders to prematurely increase their mortgage rates - and in some instances, remove certain mortgage products. As of the first week in November 2021, TSB, HSBC, Barclays and Natwest have already increased their mortgage loan rates – but should we, at this point be unduly worried? We would, at this point, say no.
The fact is that mortgage rates are still lower than pre-Covid Pandemic levels. The chances are that those who are just coming out of a 2 year – and especially a 5 - year fixed mortgage term will still enjoy the benefits of being able to find a cheaper, fixed rate mortgage options.
Just supposing that the variable base rate did increase to 0.75%, the increases in mortgage repayments, for those on floating rates, would be nothing like those seen around the time of the financial crisis. Yes, it pays to take the advice of the OBR on board, keeping finances in good shape; to not over reach ones self and even to make over mortgage payments whilst rates are low, but we don’t believe that, at this point in time, it’s a situation that should put buyers and movers off.
Based on a mortgage of 150K over a 25 year - period, an increase to 0.75% would increase monthly payments by around £50. For borrowings of 250K, over the same 25 - year period, monthly repayments would increase by around £83 a month. Whilst any increase isn’t welcome for families on tight budgets, looking at which supermarket you use; reviewing internet and mobile phone providers and many other similar considerations can go a long way to offsetting any such mortgage repayment increases. All this aside, now makes the perfect time to switch to a competitive 2- or 5-year fixed rate!
In terms of property values, October saw an increase of 0.9%. This means that UK house prices have increased by almost £31,000, since the beginning of the Covid Pandemic; this increased value is akin to the average UK salary!
Whilst house prices might temporarily slow, due seasonality, demand – the driver of prices, still out-strips supply and with mortgages still being ‘cheap’ despite recent rate increases, house prices are likely to continue to increase. For first time buyers the government help and support is also still very much in place. Given this, it would be unwise to curtail home ownership plans based on current speculation and slight mortgage rate increases.
Although the purchase of a property should be viewed as a home, first and foremost, home ownership in the UK still represents one of the best long-term investments, if chosen carefully - and a means to future financial security. This is illustrated by the fact that since house price monitoring started, back in 1983, property prices in the UK have increased by a staggering 428%. Even with inflation, this equates to an increase of over 100%
To talk through your finances and mortgage options contact independent mortgage specialists, Dunham McCarthy for a FREE consultation.