Rob Clifford, Director at Stonebridge and CEO of SDL Mortgage
Services, says it’s time to end unhelpful speculation about the impact of
marginal interest rate rises in the future.
“It is a decade since the Bank of England dropped its base rate to
a historic low of 0.5% – but, with no change to the current
0.75% expected today, the latest announcement looks set to be another
“As tempting as it might be to say that homeowners will breathe a
sigh of relief, the truth is, they are unlikely to base any future mortgage and
housing decisions on interest rates alone. Like almost two-thirds of people who
bought a property last year, their decision is more likely to be motivated by
life circumstances than the economy or the political rollercoaster.
“What’s more, this apparent obsession with interest rates can mask
more material problems in the housing market, particularly the scarce
availability of property in parts of the UK, and the challenge some people
still face in raising the substantial deposit typically required.
“If rates do happen to rise to 1% – as they are predicted to do
later this year or early next – the prophets of doom will be quick to dramatise
what impact this could have on household finances.
“However, an increase of 0.25% on a £150,000 mortgage could equate
to just £18 extra in monthly interest payments, which is hardly crippling. Most
people will simply cut their cloth accordingly, possibly forgoing their gym
membership or meals out if they are feeling the affordability strain.
“The cost increase facing a typical borrower is extremely small
when you consider that mortgage lenders typically stress test applicants’
mortgage affordability for interest rates of up to 9%: an almost inconceivable
rate in today’s world.
“Finally, we need to remember that competition in the market is
continuing to drive mortgage choice and availability, even among those who
would traditionally have struggled to get a mortgage. Banks and building
societies have reacted to consumer demand for more certainty with fixed rate
deals, while buyers today normally have their pick of five or six deals to suit
their particular circumstances. On top of the zero deposit mortgages now
available from some lenders, Virgin Money has just announced that it will
consider applicants with satisfied CCJs [County Court Judgements] and defaults
on their credit history – a sign of confidence, even in the current economic