Posts Tagged ‘interest rates’

How does the rise in interest rates affect you?

How does the rise in interest rates affect you?

It came as a surprise to many when The Bank of England decided to increase the base rate from 0.2% to 0.5% after over a decade of no rises at all taking place. The rise in interest rates is something that we are all aware of and are constantly being bombarded with stories about. But how much do we really know about them? More importantly, what will the implications of rising interest rates be for you? Read on to find out.

Variable mortgage rates will increase

If you are one of the 9.2 million households in the UK that has a mortgage, you will notice that your monthly mortgage payments will increase. Around half of the properties in the UK are on a standard variable rate or a tracker rate, and it is these households that will be affected most. Luckily, the people who are at such variable rates do tend to be older, and with smaller outstanding mortgage balances to pay back. On average, such households owe £89,000 and will face rises of between £11 and £12 a month, according to UK Finance. This, none the less is an inconvenience!

Fixed rate mortgages could see changes

If you are new to the property market and are only just taking out a mortgage loan, it’s likely that you will be on a fixed interest rate – 94% of new mortgages operate in this way. Such rates have begun to increase, but it’s unlikely that you will see any sort of rise immediately. It is, however, worth noting that once you reach the end of your term, you may find that your monthly payment rates increase. There is also a possibility that you could end up with a cheaper deal as lenders who offer fixed rates tend to be especially competitive.

Savers will benefit from an increased return

Good news if you’re currently putting aside money for a rainy day, the hike in interest rates will mean that you could see your pile getting bigger slightly quicker. According to statistics from The Bank of England, the average easy-access savings account is currently paying 0.14% in annual interest. So, someone with £10,000 worth of savings is earning £14 a year. If the rate rise is fully passed on, they would earn an extra £25 a year, making £39 in total.

However, if you have already found yourself in difficult circumstances due to issues discussed, it is worth taking a no obligation, impartial, free consultation here at Bell & Company. Call us today – 02895217373

THE CONSEQUENCES OF ULTRA-LOW INTEREST RATES

Following the latest Bank Of England Monetary Policy Committee Meeting rates remained, as expected, at 0.5%. The consensus is that in early 2016 we may see a rise to 0.75% with small increases occurring regularly.

Bell & Company are not the only ones focusing their attention on the issue of Interest Rate changes. Hamish McRae is one of Europe’s foremost economic speakers and journalist who specialises in global future trends – he is highly respected and recently published an article on the effects of the low interest rate period.

Mr McRae states that when circumstances seem to be in place for the US Federal Reserve and UK Bank of England to increase Interest Rates something turns up. These include the second Eurozone recession, inaccurate data on the UK economy, falling oil prices and the Chinese economic slowdown. All of these problems have been more or less non consequential. For example, Greece’s demise is a sideshow, UK economic growth has been steady, falling oil prices has seen a boost in consumption worldwide and a slowdown in China’s economic growth was expected and essential for the growth in the developed world.

As the issues the Bank of England highlighted above never arose to cause serious economic harm other issues have arisen due to the extended period of low Interest Rates:

  1. Wealth Inequality

There is a focus on income inequality but an issue under the radar has been the increase in wealth inequality. As asset prices in some areas have soared and those who have multiple assets have benefited massively.

  1. Property Prices Worldwide

A slightly London centric view point here but residential property price increases have been incredibly damaging. The same phenomenon has occurred in New York, Berlin and Mumbai. We all know the Northern Irish situation is different but nonetheless price increases are starting to occur albeit slowly.

  1. Pension Poverty

Pension funds are held in Government Bond Yields which have been held down for regulatory purposes – Pensioners have suffered a double hit.

  1. Cheating Unsophisticated Savers

Those who do not have access to specialist advice on getting a better return have failed to take the money out of the bank and putting it into a portfolio of performing assets.

  1. Encouraging Risk Takers

Savers are taking on ill-understood risks and overextending themselves on the basis Central Banks will keep rates low.

  1. Long-term damage to the financial system

This is hard to pin down as we won’t see the effects for years to come. But low rates mean people are avoiding Banks and this has a few consequences. The use of cash has risen sharply and it is hard to measure peer-to-peer transactions. But by reducing risk in the Banking sector the authorities are increasing it in other sectors as low returns encourages risky innovation.

The half a dozen points raised are already in effect but Mr McRae highlights another concern around the corner – inflation. Firstly, central banks have created asset inflation that resembles a price bubble which could burst. Furthermore, around the corner could be inflation in goods and services. Private sector wages are rising at the fastest rates in 15 years and this will fade into costs in the coming months as the effect of low oil prices wears off. When inflation turns up the Bank of England will have to react, but given their concerns of external factors out of their control highlighted earlier it may be too late to head off domestic inflation which was in their control. Due to delayed action to date when Interest Rates do rise they will have to at a faster rate than we expect.

Bell & Company are urging homeowners who are concerned about the effects a rise in Interest Rates in the future to get in contact NOW. Even if you are in negative equity we can assist. Furthermore, if you think it will be fine I can re-mortgage back onto a fixed rate product then think again. Following the Mortgage Market Review borrowers will find re-mortgaging a trying process and there is concern for the elderly or younger families with varying income could become mortgage prisoners.

Should you or anyone you know be concerned by the issues raised then please call the office on 02895 217 373 to arrange your free initial consultation. Our Negative Equity Resolution team will be able to discuss your scenario and tailor advice to ensure the matter can be resolved.

Terry Bell

 

Will an imminent rise in Interest rates make you a mortgage prisoner??

2016 – A Mini Credit Crunch?

We do not mean to spread doom and gloom, but feel it is essential our clients and subscribers are aware of the ever-changing economic environment. An earlier blog eluded to a likely increase in Interest Rates in 2016, not by a significant amount but they can only go one way moving forward and this will lead to concerns among many.

We have been at the point where a rate increase was first scheduled by Mark Carney for a year now. House prices in London continue to rise and unemployment is now under 7%. Mr Carney indicated the rate rises would be in “baby steps” and it is likely these first increases will occur in either quarter two or three of 2016.

Matthew Whittaker, Chief Economist at the highly regarded Resolution Foundation, states mid 2016 will be “crunch time” for the UK’s indebted households and in particular borrowers in Northern Ireland. As we have already addressed in earlier blog posts 2/3’s of mortgage borrowers will find themselves in difficulty and have expressed concerns over rate increases. Whittaker’s future predictions are also concerning with 1 in 3 homes in 2018 expecting to be suffering financial difficulty.

Deemed a Mini Credit Crunch 770,000 mortgage prisoners will be unable to remortgage and move to cheaper loans. Compared to the previous crunch where Banks felt the strain it is more alarming that this Mini Crunch will mainly affect consumers.

An example of the impact on rate increases would be a typical household with a mortgage balance of £100,000 on a variable rate of 3.6%. When the base rate begins increasing repayments will rise from £506pcm to £644pcm in 2018 according to forecasts. This is a significant rise when you consider other lines and forms of credit will likely see repayments increase also.

The big picture here is that three quarters of a million people in the UK will be unable to pay their way. The issue has been the build-up of debt during the boom as wages where not high enough. National Income grew, but this was disproportionate and only highest earners benefited and the rest fed on credit. During the subsequent bust period nothing was done to address the credit burden which was instead masked by ultra-low interest rates.

Bell & Company are advising clients concerned about future mortgage repayments to contact them today. Do not wait for rate changes to take place, you give yourself a better chance of resolving any issue if you deal with it head on and in advance. Call us today on 02890 517047 to discuss any issues you face and we can arrange a free initial consultation to move matters forward in a proactive manner.

Terry Bell – Director