In UK, Home owners face £1,000 rise in mortgage bill by next year
An interest rate rise of 0.5pc could add £1,312 to an average interest-only mortgage per year, according to Savills’ data
Interest rate rises will squeeze mortgage affordability to push monthly mortgage re-payments above 20pc of household income
Homeowners could face a jump in their mortgage re-payments of more than £1,000 as soon as next year as interest rates rise and lending conditions tighten.
A increase in the base rate from an historic low of 0.5pc to 1.5pc would add £1,312 to the annual burden for a household on an average interest-only mortgage of £131,215 payable over 25 years.
This equates to nearly £110 a month, according to new data from property agents Savills.
For those homeowners with a capital re-payments loan the increase would be £872 – taking the monthly bill from 18pc of the borrower’s income to over 20pc.
The Bank of England has said any rate rise will be gradual but it has signalled a potential increase by the end of this year.
Expectations are for quarter point increases and the Bank’s latest Inflation Report indicates markets see rates at around 1.2pc by the end of 2015 – although the upcoming Inflation Report could see that raised.
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The combination of the Mortgage Market Review, which came into force in April and was designed to curb excessive lending, with the discontinuation of interest-only loans, and increasing interest rates, will put mortgages out of reach for many who were considering buying, and will dampen price growth, according to Savills.
The study also found that should interest rates increase to 2pc it will take the repayment-to-income ratio to levels reminiscent of the third quarter of 2007, just weeks before the housing market crash. At 2pc an average repayments mortgage will rise by £1,790 a year.
“This combination of factors will limit people getting into the market as mortgage repayments become less affordable. People will rent for longer and buy later as the economy improves,” said Lucian Cook, head of residential sales for Savills. “This means that price growth will have to track earnings growth.”
The new data followed this week’s official lending statistics from the Council of Mortgage Lenders, which found that total borrowing had flattened out from £16.6bn in March to £16.5bn in April, after month-on-month hikes.
Source: The Telegraph, UK