Interest rate hike should not be a major cause for concern for many UK homeowners

Today, Private Finance; the market-leading mortgage brokerage, has said that a potential interest rate hike should not present a significant cause for concern for a large number of UK households.

The broker has found that an overwhelming number of clients are ‘gravely concerned’ about the impact of interest rate rises on their monthly mortgage payments. A large number of potential first time buyers have also been expressing a reluctance to move for fear of a potential rate hike. However, rates continue to remain low and should remain relatively low for the foreseeable future, the broker has said.

Simon Checkley, Managing Director of Private Finance says:

‘There is still considerable uncertainty over when exactly interest rates will rise. However, what is certain is that rates are highly unlikely to increase dramatically enough to have a major impact on a large proportion of homeowners. Even if rates were to rise by as much as 2%, we would see that a typical client with a joint income of around £80k* would still only be looking at paying a small amount more each month.’

Checkley added:

‘However, this is really a worst case scenario. A rise of 0.5% or 1% is far more likely, which would make additional payments even more manageable for most joint income households.’

Case study*
Mr & Mrs Smith** are looking to purchase a new residential property and have agreed a price with the vendors of £430,000.
The clients have a combined annual income of £80,000 and require a mortgage of £320,000 to complete the purchase. The clients expressed a preference that the loan was to be repaid at the expiry of the mortgage term and therefore a Capital & Interest Repayment mortgage was recommended over a term of 25 years. Mr & Mrs Smith expressed some concerns over the impact of potential rises in interest rates on their monthly payments and therefore Private Finance provided examples of both 2 & 5 year fixed rate products. In addition, to give an indication of what monthly payments the clients may face in the event of interest rate rises, a forecast was calculated based on rises of 0.5%, 1% and 2%. Of course the rate rises wouldn’t affect the client during the fixed period however the table below illustrates what could happen if they opted for a tracker.

Similarly, Mr & Mrs Jones** earn a joint income of £40,000 and are looking to purchase a property for £215,000 needing a mortgage of £160,000 to complete the acquisition. Private Finance provided the following table to illustrate the potential impact of Bank of England Base Rate rises when comparing a fixed rate vs. a tracker.

Share this article: