An Interest Rate Rise Will Leave 3M People Struggling With Mortgage Repayments, What Can Be Done?
With millions of households in the UK on variable rate mortgages, the prospect of rising interest rates is a matter of concern to many. Whilst the Bank of England has kept interest rates at their record low of 0.5 per cent since early 2009, recent comments from the Governor, Mervyn King, have suggested that interest rates are set to rise sooner rather than later.
According to Financial Services Authority (FSA) guidelines, ‘a mortgage is affordable if its level and terms allow the consumer to meet current and future payment obligations in full without recourse to further debt relief or rescheduling, avoiding accumulation of arrears while allowing an acceptable level of consumption’.
Yet the CML has confirmed that almost three million mortgage borrowers would be unable to keep up with their monthly mortgage repayments if interest rates increase. This would mean that they have not only ignored the FSA guidelines, but also been irresponsible in the amount that they have borrowed as they have not planned ahead for increases in repayments.
This news, linked with the other financial burdens currently mounting on homeowners, such as spiralling energy costs, heating bills and redundancy, has forced many to seek out more favourable remortgage rates.
As more and more concerned homeowners realise the implications of falling into arrears, many look to remortgage on a fixed rate deal. However they have also begun to realise that due to the demand for such contracts, the interest rates and costs of fixed rate deals has increased and are not so cost effective any more.
London & Country’s David Hollingworth said: “Heightened anticipation of a hike in interest rates has led to a rapid shift in fixed rate mortgage pricing. Lender after lender has moved to increase its rates, often on more than one occasion.
It seems that those who are looking to remortgage now have ‘missed the boat’ of low cost fixed interest deals, and will now have to pay above the odds to hedge against hikes in interest rates.
Recent data shows that the cost of the average five year fixed rate mortgage in the UK has increased by 0.33 per cent since January 2011. The average five year deal is now at 5.66 per cent, which, on a £150,000 interest only mortgage, represents a £41.25 hike in monthly repayment compared to January’s best deals.
As the demand for remortgages increases, lenders look set to continue increasing the cost of fixed rate deals. CML figures showed that remortgage approvals increased by 16 per cent between February and March 2011.
If you’re considering shopping around for the best remortgage rates, now could be the perfect time. As the prospect of interest rate rises intensifies, lenders look set to continue raising the cost of their fixed rate deals. Take advice from a qualified mortgage broker who can help you find the best fixed rate remortgage deal.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s top sites for the latest remortgage rates and best remortgage deals.