Rising interest Rates: Impact on Gravesham Homeowners
The bank of England announced yesterday an increase in the base rate of 0.5%, taking the base rate to 5%. This marks a 13th consecutive hike since rates were first increased in December 2021, from a low of 0.1% to 0.25%, and puts the base rate at a 15-year high. The base rate is used by most lenders to determine interest rates on mortgages and ...
The bank of England announced yesterday an increase in the base rate of 0.5%, taking the base rate to 5%. This marks a 13th consecutive hike since rates were first increased in December 2021, from a low of 0.1% to 0.25%, and puts the base rate at a 15-year high. The base rate is used by most lenders to determine interest rates on mortgages and other borrowing. The increase therefore raises concerns about the market…
Why is the Bank of England increasing interest rates?
The Bank keeps raising interest rates to tackle high levels of inflation. It was announced that the inflation rate has remained at 8.7% in the month to May this week: the same level it was in the year to April. This is above the Government target of 2% (Inflation is the term we use to describe rising prices. How quickly prices go up is called the rate of inflation).
How does the interest rate affect inflation?
Low interest rates are used to discourage people from saving their money. High interest rates encourage saving because people get a better return for the money they have saved in the bank. This in turn influences the price of goods. When interest rates are low, people might spend more and this might cause retailers to put up the price of goods. When rates are high, demand might fall as people put more money into their savings. This, in theory, should drive down the prices of goods and services.
Impact on the Gravesham homes owners
There will be concern amongst homeowners in Gravesham, particularly those with remortgages coming up or those seeking brand new deals. Those on fixed rate mortgages will have a temporary reprieve against any payment adjustments… however it may still be worth considering an early remortgage.
Many fixed rate products include an early repayment charge as part of the terms and conditions. This means if you remortgage before the discount period is over, you may have to pay a charge. For example, if you took out a five-year fixed and wanted to remortgage after three years, you might have to pay the early repayment charge to redeem your existing mortgage.
The question is: is it worth paying the charge if you are going to make a bigger saving by remortgaging early? A mortgage adviser can help you work this out and make recommendations based on your circumstances.
For those remortgaging in the next 6 months, it is advisable to capitalise on the flexibility of mortgage offers, which can typically be held for 6 months! Allowing you to secure a rate without committing.
What should I do now?
If you’re on a fixed rate mortgage, check when your deal comes to an end. Then contact us about a meeting with our mortgage broker as it may be worth remortgaging early.
If you’re on a tracker or SVR mortgage, we recommend getting in touch with us straight away so you don’t end up paying more than you need to. Our mortgage broker can advise whether it’s beneficial for you to switch to a different mortgage product, taking into account your personal circumstances.
The main thing is, we don’t want you to pay more than you need to, and a quick phone call could help put your mind at ease.
We are yet to see homeowners who have been forced to sell, however if rates continue to rise, some may be forced to review the situation and weigh up their options. We expect the market to start showing signs of forced moves in the next 12 months. Our advice is therefore to start your research now, talk to a broker so you can plan and make informed timely decisions.
There is also no need to panic about yesterdays rise as its worth remembering that whilst the news was disappointing, it won’t have come as much of a shock to lenders who have already been increasing their fixed-rate mortgages in anticipation of the rise”.
On a positive note, in the immediate term, sellers are being more realistic when it comes to pricing which means properties are still moving in Gravesham. Last month’s statistics show 77% of properties coming to market sold last month which was a 22% increase when compared to 2019!
Impact on investors in Gravesham
We expect the rate rise to have an impact on overleveraged buy to let investors whose increased mortgage payments could lead to their investment making limited profit or even a loss. Indeed we are already seeing our Landlords selling their investments as tenancies come to an end, or serving notice for possession as their mortgage deals come to an end.
Unsurprisingly on the back of the interest rate rise, landlords are calling for the reintroduction of mortgage interest relief in full and for housing benefit rates to be unlocked.
Analysis for the NLA found that 735,000 rental properties could be lost across the UK if interest rates peaked at 5%. This will exacerbate the ongoing supply and demand crisis across the private rented sector. Gravesend continues to see a severe lack of supply which is pushing rents to a unaffordable level for tenants. We are seeing more and more tenancies requiring guarantors as tenants cant pass their referencing with out one based on affordability. Average salary is under £30,000 and our average rent for a 3 bedroom house is £1400 – meaning income would need to be £42000!
Landlords are also once again being hit with further legislation obligations. Plans under the Renters Reform Bill to remove no-fault evictions means many landlords will face rent arrears and potentially a long process to evict tenants.
Should you need free mortgage advise or would like to talk about your circumstances, be it your home or investment, or the property market in general please do not hesitate to contact the office. We are here and ready to help!