Bank of England Interest Rate Rise to Cost Ashford Homeowners £279.18 per Annum

 

Ashford homeowners will be among those affected by the latest rise in the Bank of England interest rate. The first increase in 10 years; the BOE Base Rate has just been raised from 0.25% to 0.5%. This uplift comes with inflation hitting a 51-month high of 2.9% and national unemployment at an all-time low of 4.3%.

Interestingly, the Governor of the Bank of England, Mark Carney, has indicated that interest rates are likely to further increase over the next couple of years, but says mortgages and savings would not be affected in the short term. However, looking at the big banks – just about all of them have increased their standard variable mortgage rate…

The average Ashford mortgage is £111,674

How much will Ashford homeowners (on variable-rate or tracker mortgages) see their mortgage repayments increase?

In the TN23 postcode there are 6,325 mortgaged homeowners, of which 2,717 have a variable-rate mortgage (the remaining have fixed rate mortgages). The total owed by those TN23 homeowners on variable-rate mortgages is £303,441,475, meaning the average monthly mortgage payment for those home owners before the interest rate rise was £870.74 per month, now rising to £894.01 per month … meaning

The interest rate rise will cost Ashford homeowners on average an extra £279.18 per year

Whilst this is the first interest rate rise in over 10 years, it must be noted the BOE base rate remains at a significantly low level compared to rates set in the 1970s and early 1990s. Many of my readers can talk of interest rates at 17% in the 1970’s (when Geoffrey Howe increased them to combat the hyperinflation fallout of the financial crisis that hit Britain) and of September 1992 when Norman Lamont raised rates from 10% to 15% in a single day following the infamous Black Wednesday crisis!

What will this interest rate actually do to the Ashford housing market?

Well, if I’m being frank – not a great deal. The proportion of Ashford homeowners with variable-rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3%, down from a peak of 72.9% in the autumn of 2011.
If more Ashford people are protected from interest rate rises because they are on a fixed rate mortgage then there is less chance of those Ashford people having to sell their Ashford properties because they can’t afford the monthly repayments or, an even worse case scenario, have them repossessed.

However, and this will be of interest to both Ashford homeowners and Ashford buy to let landlords…for every 1% increase in the Bank of England interest rate, it will cost the average Ashford homeowner on a variable-rate mortgage £93.06 per month

So, what next? With UK inflation at 2.9% (the highest rate since April 2012) and with the Bank of England being tasked by HM Government to keep inflation at 2% using various monetary tools (one of which is interest rates) – you can see why further interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit, and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and, as we aren’t currently building enough houses (as mentioned many times in the Ashford Property News Blog), we might see a slight short-term dip in prices, but in the medium to long term, the Ashford property market should remain strong for Ashford’s homeowners and landlords alike.

The Ashford Property Market, The Beatles, Sweden and the 50 year mortgage

 

50 years ago, in 1967, the first human heart transplant was performed in South Africa by Dr Christiaan Barnard. In the same year Sweden switched from driving on the left to the right-hand side of the road, the average value of an Ashford property was £4,209, interest rates were at 5.5%, and The Beatles released their famous album, Sergeant Pepper – but what the hell has all that to do with the Ashford property market today?? Quite a lot actually, so – with my CD Player turned up to 11 – let me explain, my friends!

I have been doing some research on the current attitude of Ashford first-time buyers. First-time buyers are so important for both landlords and homeowners. If first-time buyers aren’t buying, they still need a roof over their heads, so they rent (good news for landlords). If they buy, demand for Ashford property goes up for starter homes and that enables other Ashford homeowners to move up the property ladder.

First-time buyers are the life blood of a property market. They are, however the most susceptible to interest rate rises and the affordability of mortgages. With that in mind, let us see what is happening to them…

The average value of an Ashford property is currently standing at £317,389 with UK interest rates at 0.25%. As each year goes by, it appears the age of the everlasting mortgage has started to emerge, prompted by these first-time buyers, eager to get a foot on the housing ladder. I was reading a report a few days ago where some mortgage companies confessed that the battle to gain big returns from the property market has led to mortgages that will take considerably longer than the customary 25 years to pay off.

Longer Term Loans

Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 or 35 years in length with the ‘Bank of Mum and Dad’ helping with the deposit (Beatles Sgt Pepper song – “With a Little Help from My Friends”). Now, some high street banks are offering mortgage terms of 40 years. This means first-time buyers could be paying until their mid-60’s – I can hear another great track from the same album “When I’m Sixty-Four” ringing in my ears! So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970’s. After all life expectancy for a male then was exactly 69 years and today its 79 years and 5 months!

Over the last ten years, Ashford property prices have continued to rise faster than wages, with first-time buyers tending to look for larger loans. If this trend continues, the only way monthly repayments can remain reasonable is by increasing the term of the loan.

However, some commentators have raised concerns that mortgage companies lending money over such a long term threatens leaving some first-time buyers with a generation of debt if the house price bubble bursts. Interestingly, when I looked at what had happened to average property values in Ashford over the last 50 years, there have been bubbles. First-time buyers should take heart however since, as a country, the market has always recovered from it a few years later.

Interest Rates

What if interest rates rise? Well looking at historic UK interest rates, the current 0.25% is at a 300-year low. Mortgages will never be cheaper. I would however, seriously consider a fixed rate loan to cushion any future interest rate rises (when they do change, they can only go one direction). If Ashford’s first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should do just fine!

Before I go, a final thought for property buyers in Sweden, the land of Volvo, Abba and Ikea. As Swedish property prices are so high, Swedish Regulators announced last year limits on the length of Swedish mortgage terms. They don’t bother with 50-year mortgages (On and On and On – Abba).

No, our Volvo and flat-pack-furniture loving Swedish friends’ average mortgage length is  a staggering 140 years (this is not a typo). Although such mortgages have had their Waterloo (Abba), regulators have significantly reduced the maximum term of a Swedish mortgage to a mere 105 years. Either way, that’s a lot of Money, Money, Money (Sorry!) to pay back!

Now I will leave you in peace as I listen to the 1980’s Madness song ‘Our House’. My apologies to all Beatles and Abba fans in Ashford – a bit of light hearted fun albeit on a serious topic.

Taylors Residential Lettings Limited, Company no. 6002742, Regd Office: Suite 1, Invicta Business Centre, Monument Way, Ashford TN24 0HB