Inevitably, there is a lot of uncertainty regarding interest rates in the UK and whether they will rise. A member of the Bank of England’s rate-setting committee has fuelled speculation that interest rates could rise as soon as November 2017 so the current record low rate of 0.25% could quickly increase according to recent macroeconomic forecasts.
But there is some uncertainty that in some quarters, a modest rise in interest rates could cause hardships for individual households in the UK.
With so much speculation on interest rates, banks have reciprocated with high street lenders beginning to increase their fixed rates in anticipation of the rise next month. Mortgage experts have also urged borrowers to re-negotiate the terms of their mortgage agreement before such a change occurs, so the best agreement that can be reached is both beneficial to the borrower and lender, against the backdrop of an ever-changing economy.
So, it is worth it for borrowers in advance to carefully shop around to secure a better rate and compare what is available against their pre-existing mortgage; particularly those with three-six months left on their secure term.
Also, potential borrowers wanting to take out a fixed-rate mortgage may find it more difficult to attain. With recent changes to bank policies, most recently to Barclays & NatWest, fixed-rate terms have increased as a result. More importantly, the underlying costs to mortgage lenders of their funds are increasing rapidly. With looming interest rates rising, mortgage experts suggest that new borrowers or first-time buyers are more susceptible to becoming ‘mortgage prisoners’ with longer fixed terms which involve a higher return rate for lenders.
There are concerns regarding the length of mortgages, with 15% of borrowers taking out a new loan with a 35-year term plan, a steady increase of 2.7% from 2005. This indicates that more homeowners are holding onto a term of debt for longer. A set of more stringent regulations have also been imposed to provide safety for both current and new homeowners so that they can afford their payments. Further rules also force lenders to apply a stress test, in the sense that the borrower possesses the ability to prove that they can afford repayments on the mortgage.
Despite such expectations, the BofE has assured that the interest rate increase will be gradual, allowing for borrowers to review their mortgage beforehand to accommodate for such changes. The fixed-term rates are currently already at a record low, but some banks are beginning to adjust it to a higher rate such a Barclays and NatWest, as previously stated. But the competition between lenders still stipulates such actions from taking place, preventing higher rates from entirely being passed on to borrowers.
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