Given that this was the first interest rate increase in a decade, many property owners were unsure of what impact this change would have on them. In the grand scheme of things, the rise was small and interest levels are still modest, but any increase in monthly mortgage payments will have an impact.
After all, no one wants to pay more money. Regardless of your current income level or how much disposable income you enjoy each month, you don’t want to be paying more for no additional benefit. Then again, there will be some people who have found that the increase in monthly mortgage payments places them under severe financial pressure, and that they will have to seriously reconsider their finances.
Many homeowners are paying more than £20 each month in mortgage payments
In figures offered up by the Nationwide, it is believed that the average increase in monthly mortgage payments was £22. It is therefore down to each individual or household to determine how serious an increase of £22 is to their finances.
At this point in time, fixed rate mortgage holders will feel pleased with themselves. The key benefit of a fixed rate mortgage comes with the fact that no matter what happens with interest rates, the monthly mortgage payment remains the same. However, in the long term, there is an issue that fixed rate mortgages have to consider. When this agreement comes to an end, there is a need to switch to an affordable rate or face being placed onto their lenders standard variable rate mortgage. This could see the property owner paying a lot more each month for their mortgage, and this may place them under severe financial pressure.
Property owners who believe they have weathered the additional payment without much difficulty should consider the fact that further increases are expected in the future. The Governor of the Bank of England, Mark Carney, has tipped two further increases in the next three years while some sources believe there will be an additional two increases before the end of 2018. It could be that the base rate could reach 1% by the end of 2018 and this will see a number of property owners facing a spike in monthly mortgage payments.
Homeowners should be prepared for further increases
Given that there is an expectation that interest rates are going to rise; homeowners have to be prepared for a rise in mortgage payments. This means the beginning of 2018 is a great time to review your finances and look to see if savings can be made. No one wants to cut costs if they don’t have to but being prepared for interest rate increases is a sensible move.
One other impact of increasing interest rates may be how mortgage lenders react to applications. If monthly payments are going to be higher, it is not inconceivable that some lenders will tighten their criteria. This could lead to more applicants having mortgage applications declined or denied, which would have implications for the property and lettings market in 2018 and beyond.
Whatever your property aims for 2018 are, come and speak to Oaks Estate Agents and we will do our best to help you find the solution that works best for you.