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Mortgage holders will be relieved that the Bank of England has left borrowing costs at an all time low following the rate-setting committee vote; currently 0.25% which is the lowest in the banks history. However, there has been a warning that interest rates will rise, leading homeowners face an increase in mortgage repayments.
The latest forecast from the National Institute of Economic and Social Research (NIESR), is that there will be a hike to the first three months of next year, rather than 2019 as previously indicated. However, the Bank of England has said it expects rate rises to be gradual.
The cost of an interest hike will vary depending on the terms of each individual mortgage, including the length of the term, how much has been borrowed, and whether it is on a fixed or variable rate.
It’s important that borrowers plan ahead and to understand the implications of a rate rise. For those on a lender’s standard variable rate, a rise in interest rates could have a big impact, whereas those on a fixed rate won’t be impacted until the end of their fixed term.
There is a growing amount of debt among people in the UK, with some organisations expressing fear that this debt is unmanageable especially for those taking advantage of credit card, car finance and cheap personal loan offers. There has also been a rise in the number of mortgages with the amount borrowed exceeding 4.5 the income of the borrower.
Lenders will need to future-proof their lending and rigorously stress their borrowing at higher assumed interest rates of around 5% to 7%. This will ensure that borrowers can afford their mortgage in the event of rate rises.
Talk to Derngate Wealth today to find out if you can cope with a mortgage rate rise.
Your home may be repossessed if you do not keep up repayments on your mortgage.