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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