by Mark Johnston
A staggering number of homeowners, about 3.5 million, are unaware of what the increase or decrease in the base rate would have on their mortgage repayments. That’s a massive one in five that wouldn’t know what their repayments would actually be if the base rate were to go up. Of the 22 per cent of the mortgage market, 13 per cent are on tracker mortgages and 16 per cent are on the lending variable rate
Recently the Bank of England maintained the startling base rate of 0.5 per cent. This should come as no surprise to the readers of MortgageRates.org. With the struggling pound and the weak progress of the pound against other currencies, the Monetary Policy Committee has decreed that the base rate should not change. This marks the 25th month running that the committee has decided against a change.
What is a surprise is that the bank decided against increased quantitive easing. There is some disagreement in the committee, with a small division requesting an increase to the base rate, citing continued impacts on inflation and pressures within this market. Members of the monetary committee seem quite happy to wait and see what figures say regarding growth on Gross Domestic Produce (GDP). Investors are betting the Bank will hold out on action until May or June but this is where the economic picture becomes a little clearer and where decisions need to be made and risks need to be taken.
Inflation rose in February to 4.4 per cent and continues to rise, boosted by rising commodities prices. Oil is also a contributing factor; the price is rising steadily driven by a higher demand within Asia and by supply concerns from the recent conflicts in the Middle East. To keep inflation in check the Bank of England has the job of raising or lowering rates.
With current interest rates at 0.5 per cent, an average mortgage of £160,000 at a variable rate over 25 years, you would pay £568 per month. If interest rates were raised to 2 per cent, then the same mortgage over the same period would cost £682 per month, over £100 more per month.
Recent information released online indicated that 22 per cent of al homeowners are completely unaware of the effect that an increase in base rate would have on their monthly mortgage repayments.
Chief executive of unbiased.co.uk, Karen Barrett, says that “Predictions of when the base rate will increase are drawing ever closer, but when it happens it will still come as a surprise to many homeowners. Those on tracker rates, SVR’s and even fixed rates are in the dark about how their personal finances will be affected by this change, meaning it’s impossible for them to budget for the future.” Consumers should contact their bank or lender and discuss what impact changes in the base rare would have on their personal situations.
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