New research has shown the potential effects that could be felt by mortgage holders if interest rates were increased by 1%. Savills has discovered a rise of 1% in the current base rate would lead to an increase of some £4.3 billion in the mortgage bill owed by those on variable rate mortgages. Factoring in fixed rate deals that would expire after such a rate change would send the total mortgage increase to around £10 billion.
The prospect of an interest rate rise following on the heels of the one announced in November last year is almost constantly being discussed. While no one knows when the next rise will occur, many experts agree it will likely happen sooner rather than later. A poll conducted by Reuters indicated 32 of 57 economists believed the base rate would rise this May. It remains to be seen whether they are correct, and whether more economists join them in that belief.
Many experts thought there would be a fall in inflation in January. However, this was not the case, with the same 3% rate sticking in place. This suggested there was a greater chance we could see a rise in interest rates in the next couple of months.
Average of £930 a year extra on an individual mortgage bill
While any rate rise is likely to be far lower than 1%, the research by Savills indicates how a rise of this degree would be felt by mortgage holders. The average annual increase in mortgage payments would be £930. Of course, this depends on the amount owed and each individual situation.
Time to be aware of fixed rate deals
“This research has shown that people on variable rate deals should be aware of the change in their monthly payment if interest rates do go up,” said Darren Pescod, CEO of The Mortgage Broker Limited. “The research looks at a rise of 1%, whereas any rise that does occur in the coming months is likely to be lower than this. However, it does show how such a rise would make meeting the monthly mortgage payments more difficult for some.
“People who are on variable rate deals will see an almost-immediate increase in their payments. As such, now would be a good time to consider shopping around for a competitive fixed rate deal. There is a chance we could see more than one rate rise in the coming months and years, so locking in a good deal now could pay dividends in the future.”
House prices are likely to be more subdued in the next few years too
While house prices will still rise in the coming years, Savills believes the rise will be more muted than would otherwise be the case.
Another rise has already been seen in the fixed rate mortgage deals on offer. Finding and locking in a good deal now could well be an excellent move, just ahead of any potential rate rise yet to come.
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