If rising interest rates increased the average mortgage repayment by £200, 4.8m people, or 66% of all mortgage holders would struggle to pay.
Research released by financial markets insurance specialist MarketGuard revealed 2.7m variable or tracker rate mortgage holders would struggle to meet their mortgage repayments with an increase of just £100 a month, or an interest rate rise of just 1% for a typical interest-only mortgage.
Two-thirds of borrowers admit they are worried about the prospect of an interest rate rise in 2011/2012, according to the survey.However, although 60% of borrowers are keen to switch to a fixed rate for peace of mind, both the CML and FSA have said many customers are finding it difficult to switch because they are on a self cert, high LTV, credit impaired, or interest only mortgage.
Chris Taylor, CEO of MarketGuard, said: "This research reveals just how vulnerable the British public is right now to a rise in interest rates. It is clear that we face a major problem if rates start to move dramatically upwards in response to inflationary pressure".Fixed rate deals are popular because but there are many mortgage holders in the UK who are unable to find a suitable fixed rate deal.
Thursday, 13 January 2011
Wednesday, 12 January 2011
Bank of England urged to keep rates low
The Bank of England has been urged to keep the base rate of interest low by the British Chambers of Commerce (BCC) after it suggested the recovery in the UK economy has slowed.
The BCC's latest Quarterly Economic Survey indicated that the economy continued to grow in the fourth quarter of 2010, but at a slower pace than in the second and third quarters. Fragility in the service sector is thought to have played a major part in the slowdown.
"Given the dangers facing the economy, we urge the Monetary Policy Committee to persevere with its current expansionary policies and maintain low interest rates until the recovery is more secure," said David Kern, chief economist at the BCC.
The BCC's latest Quarterly Economic Survey indicated that the economy continued to grow in the fourth quarter of 2010, but at a slower pace than in the second and third quarters. Fragility in the service sector is thought to have played a major part in the slowdown.
"Given the dangers facing the economy, we urge the Monetary Policy Committee to persevere with its current expansionary policies and maintain low interest rates until the recovery is more secure," said David Kern, chief economist at the BCC.
Monday, 10 January 2011
Rate spoilt generation
With the Bank of England base rate remaining at 0.5% for a record 21 months, tracking data from unbiased.co.uk reveals the emergence of a new ‘rate-spoilt' generation.
On average the fixed rate deal that homeowners would be prepared to fix at is now an unrealistic 3.3%. This has dropped significantly from an average 4.0% in January 2009.
It appears the lengthy period of low interest rates has resulted in homeowners losing touch with mortgage reality, as best buys for three year fixed rate deals are currently around 5.1%3 - nearly 2% more than the average homeowner is currently willing to pay.
Fixed rate mortgage deals reached around 7.8% at the end of 2007 therefore the current average fixed rate deal of 5% appears to be a long-term ‘good' deal when considering economic predictions stating that interest rates will rise.
An even more worrying one in six (16%) homeowners would only be happy with a fixed rate deal of 2% or less for the next three years. However, historical data since 2005 shows that fixed rate deals have never been at such low levels as this, highlighting the stark contrast between homeowner ideals and reality.
With SVR mortgages remaining lower than best buy fixed rate mortgage deals in the current market place; it appears homeowners are still refraining from remortgaging to a fixed rate deal until the base rate starts to rise.
When describing their current mortgage situation, almost a third (31%) of all homeowners state they are on their lender's SVR mortgage and have no plans to change this. This has increased from just a quarter (26%) who stated this in January 2009.
Only one fifth (22%) of homeowners have just tied into another fixed rate deal after their previous fixed rate ended, instead of automatically moving onto their lender's SVR.
Similarly, just a quarter (25%) of those currently on a fixed rate mortgage who are coming to the end of their deal will move onto a new deal as soon as this one ends - instead of moving onto their lender's SVR.
Karen Barrett, Chief Executive of unbiased.co.uk comments:
"With the base rate now remaining at a record low of 0.5% for 21 months, possibly 22 months after next Thursday's base rate decision, our tracked research shows this has had a dramatic effect on homeowners' rate expectations.
"Their ideas of what is a reasonable fixed rate mortgage have become distorted in the low-interest rate environment, and they need to ensure that their mortgage expectations are realistic.
"While record numbers of homeowners remain on their lender's SVR instead of tying into another deal, and with many predictions for rate rises during 2011, homeowners need to be alert to ensure they don't miss out on getting the best deals before it's too late.
"It can be very confusing for homeowners to keep track of which is the best mortgage for them and when is the best time for them to move onto a new deal. Homeowners should seek whole of market mortgage advice to ensure they get the best deal from the whole of the market at the right time."
On average the fixed rate deal that homeowners would be prepared to fix at is now an unrealistic 3.3%. This has dropped significantly from an average 4.0% in January 2009.
It appears the lengthy period of low interest rates has resulted in homeowners losing touch with mortgage reality, as best buys for three year fixed rate deals are currently around 5.1%3 - nearly 2% more than the average homeowner is currently willing to pay.
Fixed rate mortgage deals reached around 7.8% at the end of 2007 therefore the current average fixed rate deal of 5% appears to be a long-term ‘good' deal when considering economic predictions stating that interest rates will rise.
An even more worrying one in six (16%) homeowners would only be happy with a fixed rate deal of 2% or less for the next three years. However, historical data since 2005 shows that fixed rate deals have never been at such low levels as this, highlighting the stark contrast between homeowner ideals and reality.
With SVR mortgages remaining lower than best buy fixed rate mortgage deals in the current market place; it appears homeowners are still refraining from remortgaging to a fixed rate deal until the base rate starts to rise.
When describing their current mortgage situation, almost a third (31%) of all homeowners state they are on their lender's SVR mortgage and have no plans to change this. This has increased from just a quarter (26%) who stated this in January 2009.
Only one fifth (22%) of homeowners have just tied into another fixed rate deal after their previous fixed rate ended, instead of automatically moving onto their lender's SVR.
Similarly, just a quarter (25%) of those currently on a fixed rate mortgage who are coming to the end of their deal will move onto a new deal as soon as this one ends - instead of moving onto their lender's SVR.
Karen Barrett, Chief Executive of unbiased.co.uk comments:
"With the base rate now remaining at a record low of 0.5% for 21 months, possibly 22 months after next Thursday's base rate decision, our tracked research shows this has had a dramatic effect on homeowners' rate expectations.
"Their ideas of what is a reasonable fixed rate mortgage have become distorted in the low-interest rate environment, and they need to ensure that their mortgage expectations are realistic.
"While record numbers of homeowners remain on their lender's SVR instead of tying into another deal, and with many predictions for rate rises during 2011, homeowners need to be alert to ensure they don't miss out on getting the best deals before it's too late.
"It can be very confusing for homeowners to keep track of which is the best mortgage for them and when is the best time for them to move onto a new deal. Homeowners should seek whole of market mortgage advice to ensure they get the best deal from the whole of the market at the right time."
Tough week ahead for MPC
Commentators expect the Monetary Policy Committee (MPC) to hold rates again this week when it meets on Thursday,but the decision is becoming tougher for policymakers as the UK economy continues to offer mixed signals.
Inflation continues to run at 3.3%, well above the government's 2% inflation target but MPC members remain reluctant to dampen the burgeoning economic recovery, according to a Guardian story today.
Andrew Sentence was the only voice to vote for a rise in December, but economists continue to expect rates to stay at 0.5% for some time to come.
Howard Archer, chief economist at IHS Global Insight said the MPC was likely to be "reluctant to adjust policy until they get a clear idea of how the economy is reacting to fiscal policy being tightened from the start of 2011."
Ben Thompson, director of mortgages at Legal & General said it expects the first hike to come in January 2012, but said he checked this morning this is still its official line.
"I am increasingly feeling that interest rates could go up sooner, but that only serves to stoke the remortgage market, which is seeing more activity all the time," he said.
"The reasons are two-fold. Homeowners are remortgaging partly out of fear they will miss the boat on rates and secondly, with some great deals , some remortgage rates are starting to look like a better idea."
Inflation continues to run at 3.3%, well above the government's 2% inflation target but MPC members remain reluctant to dampen the burgeoning economic recovery, according to a Guardian story today.
Andrew Sentence was the only voice to vote for a rise in December, but economists continue to expect rates to stay at 0.5% for some time to come.
Howard Archer, chief economist at IHS Global Insight said the MPC was likely to be "reluctant to adjust policy until they get a clear idea of how the economy is reacting to fiscal policy being tightened from the start of 2011."
Ben Thompson, director of mortgages at Legal & General said it expects the first hike to come in January 2012, but said he checked this morning this is still its official line.
"I am increasingly feeling that interest rates could go up sooner, but that only serves to stoke the remortgage market, which is seeing more activity all the time," he said.
"The reasons are two-fold. Homeowners are remortgaging partly out of fear they will miss the boat on rates and secondly, with some great deals , some remortgage rates are starting to look like a better idea."
Friday, 7 January 2011
Prime Minister steps in over FSA Mortgage Market Review
Prime Minister David Cameron has spoken out about plans to clamp down even further on mortgages in the name of responsible lending.
Housing minister Grant Shapps, due to meet the FSA this week, has said that under the FSA’s Mortgage Market Review proposals, he himself would have failed to get a mortgage.
Now Cameron has said that lenders have already gone too far in preventing ‘good risk’ buyers from getting mortgages.
The Prime Minister warned that the housing market was ‘stuck’ and would not improve until banks and building societies got back to ‘respectable’ lending. Cameron said the reaction to the crash had now gone too far.
He said: “The pendulum has now swung too far the other way. If you are a single person, you are earning a decent salary, you go to the bank or building society, you are actually quite a good risk, they won’t give you 80% of the value, they won’t give you four times your salary.
“So we are working with them to try and say, of course we don’t want to see the unsustainable boom of the past, but we’ve got to get proper lending, respectable lending, going again.”
Cameron made it clear that he did not want to see a return to 120% mortgages and loans based on seven or eight times earnings.
He said: “We don’t want another housing boom where prices rise out of people’s reach, but the housing market is a key part of the economy. You need a housing market where people are able to sell and people are able to buy.”
Housing minister Grant Shapps, due to meet the FSA this week, has said that under the FSA’s Mortgage Market Review proposals, he himself would have failed to get a mortgage.
Now Cameron has said that lenders have already gone too far in preventing ‘good risk’ buyers from getting mortgages.
The Prime Minister warned that the housing market was ‘stuck’ and would not improve until banks and building societies got back to ‘respectable’ lending. Cameron said the reaction to the crash had now gone too far.
He said: “The pendulum has now swung too far the other way. If you are a single person, you are earning a decent salary, you go to the bank or building society, you are actually quite a good risk, they won’t give you 80% of the value, they won’t give you four times your salary.
“So we are working with them to try and say, of course we don’t want to see the unsustainable boom of the past, but we’ve got to get proper lending, respectable lending, going again.”
Cameron made it clear that he did not want to see a return to 120% mortgages and loans based on seven or eight times earnings.
He said: “We don’t want another housing boom where prices rise out of people’s reach, but the housing market is a key part of the economy. You need a housing market where people are able to sell and people are able to buy.”
Thursday, 6 January 2011
Higher interest rates will boost economy
Higher interest rates are needed to help boost the economy, a leading Bank of England economist said yesterday.
They will also help keep a lid on inflation, according to Andrew Sentance, a member of the Bank's monetary policy committee.
This week's VAT increase will push up inflation, which could force the Bank to raise rates. But this will help the economy by generating better returns for Britain's army of savers who have lost out since rates hit rock bottom in March last year, Mr Sentance said.
VAT has now risen to 20 per cent, which will push inflation above 4 per cent, he added.
This will make the Bank likely to 'gradually' raise rates from the record low of 0.5 per cent - a blow to millions of borrowers but a boost for savers.
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