Increase in interest rates to cost local homeowners £300 pa

In Rutland there are 3,920 homeowners with a mortgage, with the average mortgage being £120,312. 

 

Of those homeowners, 1,684 have a variable rate mortgage and the remaining are on a fixed rate. The total amount owed by those on variable rate mortgages is £202,608,739 meaning the average monthly mortgage payment for those home owners before the interest rate rise was £938.10 per month and now its £963.16 per month - meaning the interest rate rise will cost local homeowners on average an extra £300.78 per year.

 Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17% when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate actually do to our local housing market? Well, if I’m being frank – not a great deal.

 

The proportion of local homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3%, down from a peak of 72.9& in the autumn of 2011.

If more homeowners are protected from interest rate rises because they are on a fixed rate mortgage, then there is less chance of them having to sell their properties because they can’t afford the monthly repayments or an even worse, have them repossessed.

However, for every 1% increase in the Bank of England interest rate, it will cost the average Rutland homeowner on a variable rate mortgage £100.26 per month

Because UK inflation levels are at 2.9% (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2% using various monetary tools (one of which is interest rates), you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

 Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses we might see a slight dip in prices in the short term, but in the medium to long term, our local property market will always remain strong for both homeowners and landlords alike.