Interest rates go up – but what next for homeowners?
As expected, the Bank of England's monetary policy committee raised (MPC) interest rates by 0.25 per cent today, which is good news for savers but bad news for mortgage holders.
Ever since it was revealed that consumer prices inflation broke through the three per cent barrier in March, finance experts and banks have been preparing customers for the inevitable and homeowners have responded by remortgaging to cheap fixed-rate deals.
Of course, pundits love to be proved right when it comes to interest rates, although they're probably not in the same financial dire straits as many of their fellow citizens, who are up to their eyes in debt. For example, today's announcement means that a homeowner with a typical £100,000 mortgage will have to find another £16 a month – and this follows three rate hikes that took place between August and January.
While any rate rise is bad news for households – especially those who didn't read the signs and failed to remortgage – at least it wasn't the dreaded 0.5 per cent hike that some pundits were predicting. If this had happened it would have been the first time in the MPC's ten-year history that rates had gone up by half a per cent in one go.
Having said that, there is a strong possibility that rates will rise again at some point over the next three months, which could be something of a problem for homeowners already struggling with mortgage payments and other monthly outgoings, such as council tax, utility bills and unsecured debt repayments.
However, for those of you who have already remortgaged to a good rate, it is unlikely that a further rate hike will have much of an impact as I have a strong suspicion that many lenders factored in this possibility before publishing their new rates at the end of April and the beginning of May.
This means that homeowners are now roughly split into two camps – those who made the effort to remortgage and those who didn't for various reasons. However, today's news – which has been overshadowed by Tony Blair's resignation announcement – will probably be the impetus needed for borrowers to get their house in order before the MPC makes its next decision in June.
But this begs the question, what if rates don't go up again? This is not a spurious question but something that is being asked by some experts, who believe that inflation is about to come down as the UK's lending cycle peaks.
Not so long ago, I remember reading that home loans expert Ray Boulger from mortgage broker John Charcol believes it could be too late for households to protect themselves against further rate increases. He went on to say that borrowers could be better off going for a variable-rate mortgage, especially if rates have reached their peak and take a downward turn in the near future.
Of course, while this kind of view is an interesting addition to the rates debate, it is more than likely that households will be eyeing up the latest fixed-rate deals in the windows of their bank or on the many websites devoted to this issue.
Ever since it was revealed that consumer prices inflation broke through the three per cent barrier in March, finance experts and banks have been preparing customers for the inevitable and homeowners have responded by remortgaging to cheap fixed-rate deals.
Of course, pundits love to be proved right when it comes to interest rates, although they're probably not in the same financial dire straits as many of their fellow citizens, who are up to their eyes in debt. For example, today's announcement means that a homeowner with a typical £100,000 mortgage will have to find another £16 a month – and this follows three rate hikes that took place between August and January.
While any rate rise is bad news for households – especially those who didn't read the signs and failed to remortgage – at least it wasn't the dreaded 0.5 per cent hike that some pundits were predicting. If this had happened it would have been the first time in the MPC's ten-year history that rates had gone up by half a per cent in one go.
Having said that, there is a strong possibility that rates will rise again at some point over the next three months, which could be something of a problem for homeowners already struggling with mortgage payments and other monthly outgoings, such as council tax, utility bills and unsecured debt repayments.
However, for those of you who have already remortgaged to a good rate, it is unlikely that a further rate hike will have much of an impact as I have a strong suspicion that many lenders factored in this possibility before publishing their new rates at the end of April and the beginning of May.
This means that homeowners are now roughly split into two camps – those who made the effort to remortgage and those who didn't for various reasons. However, today's news – which has been overshadowed by Tony Blair's resignation announcement – will probably be the impetus needed for borrowers to get their house in order before the MPC makes its next decision in June.
But this begs the question, what if rates don't go up again? This is not a spurious question but something that is being asked by some experts, who believe that inflation is about to come down as the UK's lending cycle peaks.
Not so long ago, I remember reading that home loans expert Ray Boulger from mortgage broker John Charcol believes it could be too late for households to protect themselves against further rate increases. He went on to say that borrowers could be better off going for a variable-rate mortgage, especially if rates have reached their peak and take a downward turn in the near future.
Of course, while this kind of view is an interesting addition to the rates debate, it is more than likely that households will be eyeing up the latest fixed-rate deals in the windows of their bank or on the many websites devoted to this issue.
Author: Richard Mather
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