- Interest rates in the UK have been held by the Bank of England’s Monetary Policy Committee at an all-time record low of 0.5% since March 2009.
- For many on variable rate or tracker mortgages, this has meant some 21 months of financial heaven, with reduced mortgage payments or the opportunity to pay down some of the capital.
For many, it has represented a welcome breather from the sky-high mortgage payments, but for those who have not budgeted properly, any rise in UK mortgage rates could prove a nasty financial surprise during 2011.
Without wishing to go into the long (and frankly boring) relationship between the Bank of England base rate, the rate that banks lend to each other (LIBOR), how banks actually fund mortgage lending and mortgage rates themselves, instead this short blog post will focus on what this means for general vulnerable consumers.
- In the pre-credit crunch world, mortgage rates tended to sit between 0.19% and 1.69% above the Bank of England base rate. So, with base rates sat at 5%, mortgages were commonly available between 5.19% and 6.69%.
Now, despite the government offering significant financial support to the UK’s retail banks and also pumping billions of £ sterling into the economy through a policy of quantitative easing, the difference between the BoE base rate and mortgage rates is significantly higher.
At the time of writing this post, the BoE base rate is still set at 0.5% and according to a very well known animal-friendly comparison website “compare the market” mortgage rates for comparison varied between 2.3% and 5.9% – as much as 5.4% above BoE base rate.
Whilst this is a very crude measure (as mortgage rates are impacted by costs of application, valuation and arrangement) it is clear that the cost of borrowing to the everyday man in the street is higher.
If there are interest rate rises during 2011, customers on variable or tracker rate mortgages would not need to see rates rise massively, before their mortgage payment is back to pre-credit crunch levels. Indeed if Bank of England base rates were to return to close to 5%, this could cause considerable problems for many households.
- Is there anything that you can do to prevent this situation from affecting you and your family, to avoid getting into financial difficulties?
Well, a good start would be to review your household incomings and outgoings to understand exactly where money is being spent. Here at Lewis Alexander, we have in house debt management experts who have considerable experience in working with consumers to help them solve personal debt problems.
- And in our experience, many financial difficulties can be avoided through sound financial planning.
Having understood your household budget, if you have any surplus available, then rather than spending your entire income, it would be worth investigating savings options or the flexibility of your mortgage. By building up your savings, or by over-paying a flexible mortgage you may be able to build up a pot that will help you cover the rising cost of your mortgage should interest rates rise significantly in the coming year.
The most important thing to remember is that interest rates will have to go up at some point if inflation continues to rise. It is also worth remembering that the spare income you may have now is not actually spare, it is an extra disposable gift for a certain time that you should take full advantage of as when interest rates do increase that gift will seem somewhat in the far and distant past!
- Some people are being careful and taking advantage of the reduced rates others are not!
If you are not able to budget for this rise in living costs, and you have other unsecured debts that you are struggling to repay, then don’t worry, help is at hand! One free call to our debt management experts at Lewis Alexander can be the start to a less stressful and healthier financial existence. We start by understanding your financial situation, before recommending a financial solution that is appropriate to your personal circumstances.
At Lewis Alexander, we are able to help a wide variety of ordinary people who are experiencing financial difficulties so long as they have a regular income and the self discipline to stick to a debt repayment schedule.
- Call us free using 0800 018 6868 to discuss your personal situation with one of our personal debt specialists. Our lines are open 24 hours a day to take your call in confidence.
- One call could change your financial future, so make that call today!
