Home owners and buy to let landlords facing mortgage cost hike as early as May

Last November the Bank raised the cost of borrowing for the first time in more than 10 years from 0.25% to 0.5% and at the time indicated there could be two more increases of 0.25% over three years.

But it now appears there could be an increase as early as May this year and another one in the autumn which are set to affect millions of people with mortgages as the rates standard rates usual rise in line with the Bank and low interest mortgage products could be withdrawn.

Although the Bank’s Monetary Policy Committee has just voted to keep interest rates on hold at 0.5% at their latest meeting it said that rates would need to rise ‘earlier’ than previously forecast and by a ‘somewhat greater extent’ than they thought at their review in November.

Around 8.1 million UK households have a mortgage and of those almost half are on either a standard variable rate or a tracker rate. Interest rates on those types of mortgages would be likely to match any increase in official rates made by the Bank of England.

Experts think the next rate rise could come as soon as May. The next MPC meetings is on 22 March and they believe a rise is unlikely then but it is probably going to be announced on the meeting after that on 10 May.

Paul Hollingsworth, senior UK economist at Capital Economics, said:

‘It paves the way for an interest rate hike in May, and we think that the MPC will hike a further two times this year, taking Bank Rate to 1.25%.’

However, Rob Clifford, commercial director at property specialist SDL Group, believes that home owners and buy to let landlords are aware that rates with rise and making preparations.

Rob Clifford said:

‘It doesn’t matter whether you are considering the residential or the buy-to-let market, the fact remains the same that consumers want interest rate certainty and the best deal they can get. Consumers are preparing for a rise and they’re quite literally getting their financial house in order.

‘Notwithstanding many consumers taking sensible action ahead of the potential rise, my opinion is that this isn’t going to have a major impact on the mortgage and property market as whole, because it isn’t mortgage rates and the consequent monthly affordability that’s causing a bottleneck.

‘The major barriers are the capital required for the initial deposit and availability of housing stock. A further rise in interest rates isn’t going to change those key constraints and I therefore can’t see it having a material impact on housing transactions.’

According to Andrew Turner, chief executive at Commercial Trust Limited, it should be remembered that current mortgage interest rates remain at historically low levels.

Andrew Turner said:

‘This announcement gives landlords more time to assess their property investments and to evaluate whether or not to take advantage of these low rates by remortgaging, in anticipation of any future rates changes.’

The likelihood of higher mortgage costs comes at a time when fewer people in the UK are having difficulties paying. The latest figures from UK Finance show that there were 82,800 home owner mortgages in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2017, a fall of 7% from the same period in 2016.

There were 5,100 buy to let mortgages in arrears of 2.5% or more of the outstanding balance, down 2% year on year, the figures also show.

Some 1,100 home owner mortgaged properties were taken into possession, down 8%, and 600 buy to let mortgaged properties, unchanged from the same quarter of the previous year.

Paul Smee, head of mortgages at UK Finance, pointed out that annual home owner possessions currently stand at a 36 year low, with overall arrears and possessions continuing to decline.

Paul Smee said:

‘This reflects the mortgage industry’s continued commitment to appropriate and prudent lending. All potential borrowers are carefully assessed against their ability to pay back their loans, and lenders work closely with their customers to ensure that any payment issues are dealt with at an early stage. Anyone experiencing difficulty with their mortgage should contact their provider immediately.’