3 Reasons why you should be on-guard from mortgage complacency
After ten years the Bank of England finally announced it is raising interest rates from 0.25% to 0.5%, by a seven to two vote by the Bank's Monetary Policy Committee. We'll look at three reasons why mortgage owners may still be in a false sense of security.
1. It's been ten years since the last rate rise
The recent rate rise was just before the financial crisis of 2008, which saw lending temporarily frozen. This month’s rate rise however was widely expected, but at this point will still do little to shake borrowers out of low interest complacency enjoyed for so long. However, borrowers on variable rate mortgages are likely to feel the bite sooner than later.
Following this historically significant rise, it won’t be long before the high-street banks and lenders adjust their mortgage products. Prior to the MPC's announcement the Bank had been telling high street banks to be alert and responsible with consumer lending, possibly foreshadowing today’s announcement having the effect of beginning to put a squeeze on borrowing customers.
2. All Fixed-Rate Mortgages eventually mature
And as for those mortgage borrowers who feel safe in the knowledge that they had taken out a fixed-rate mortgage, their comfort may end once their terms mature and are forced to take on bank standard rates. This, and given that house prices have impacted little even with the rise on the horizon, without the right preparation from borrowers many may be caught off guard and worse still faced with repossession. As reported in The Guardian, the City believes that 2017 won’t be the only year to experience interest rate hikes, with more rises predicted for 2018 and possibly 2019, peaking a normalised expected rate of 1%.
3. An Uncertain Future
With the current state of the economy and the prospect of a bad Brexit deal looming on the horizon. To make matters worse, even with a good Brexit deal no one can really be a hundred percent sure how Brexit will affect our economy. It may be a while before the Bank of England can cut interest rates - meaning tough years ahead for those with mortgages bordering on the edge of safe.
We all knew this change was coming, it is however in every mortgage-dependent home owner's own interests to stay one step ahead of nasty surprises when the writing is clearly on the wall.