HOMEOWNERS should prepare for ‘choppy waters’ after the Bank of England raised its base interest rate to 1% earlier this month, its highest level since 2009 and fourth hike since December.
Those who are not on fixed-rate mortgages will soon feel the pinch in their pocketbooks, say local providers.
‘Any rise in base rate means they will see their repayments go up and this change will be immediate,’ said Christina Liciaga, head of customers and products for HSBC Channel Islands and Isle of Man. ‘Rising rates immediately affects people with floating-rate mortgages (tracker-rate and standard variable-rate mortgages).’
Many customers opted for these mortgages last year when interest rates were historically low, she added. The trend from the Bank of England this year is in the opposite direction, however, as the central bank moves to combat rampant inflation in the UK. More hikes have been predicted. While those on fixed-rate mortgages now will not be immediately affected, they should plan for the future.
‘Fixed-rate mortgages are a way that customers can help lock-in an attractive rate now if the base rate continues to rise,” Ms Liciaga said.
Peter Seymour, the managing director of the Mortgage Shop, agreed now was the time to choose fixed-rate mortgages. ‘Fixed rates are available for terms of two, three, five, seven and ten years and we are currently recommending the longer term fixes, in particular the five and seven years as these will keep a borrower out of trouble for a good period of time,’ he said.
While Skipton Mortgage Centre in Jersey has committed to keep its ‘follow on’ rate at the current level for those emerging from fixed-rate agreements for the time being, manager Lorraine McLean said Islanders should look carefully at their finances.
‘We cannot guarantee that it won’t go up if the BoE rates rise again, but we intend to keep it at today’s rate for as long as we possibly can,’ she said.
‘The BoE has already predicted more hikes in the future, and we all need to be aware of that – there are choppy waters ahead, not just for the UK, but for Jersey as well, and house owners across the Island need to plan ahead as best they can to futureproof their own private situations.’
Mr Seymour said there might also be a knock-on effect to the local economy as homeowners tighten up their other discretionary spending. ‘Due to the exceptionally low cost of borrowing, many homeowners have also pushed out the boat by taking expensive holidays, buying luxury cars and fitting out their homes with new kitchens and bathrooms and eating out more frequently,’ he said.
‘At this stage, I don’t think that many will fall into arrears, although the spending will have to stop to the detriment of all of the businesses that have been supported by the spending spree.’
Those who find themselves struggling to meet financial commitments are urged to contact their lenders early. ‘We do anticipate a number of borrowers may feel the pressure of keeping up repayments, along with the other worries such as rising fuel bills, and we strongly urge them to contact us as soon as they think they may have an issue,’ Ms McLean said.
‘It’s far better to talk to us before it becomes a huge problem and payments are missed. There are a number of options we can look at – each case is individual, and all options will be discussed openly and fairly.’
