At the beginning of this month the Bank of England chose to raise interest rates for the first time in 10 years. Unfortunately, Rotherham homeowners will be among those affected by this rise.
The decision to raise interest rates from 0.25% to 0.5% was made as inflation hit a 51-month high of 2.9% and the national unemployment rate was at an all-time low of 4.3%.
Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, if you take a look at all the big banks, just about all of them have increased their standard variable mortgage rate.
How much will Rotherham homeowners see their repayments increase?
The average Rotherham mortgage is currently £63,434 – how much will homeowners on variable or tracker mortgages in our area see their repayments increase?
In the S60-S66 postcodes there are 34,010 homeowners with a mortgage, of which 14,611 have a variable rate mortgage (the remaining have fixed rate mortgages).
The total amount owed by those S60-S66 homeowners with those variable rate mortgages is £926,815,233, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £494.61 per month and now its £507.82 per month.
All this means that:
The interest rate rise will cost Rotherham homeowners
(on average) an extra £158.59 per year
Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s.
Many of my readers will remember interest rates at 17% after they were increased by Geoffrey Howe to combat the hyperinflation which resulted from the 1970s financial crisis in Britain. They may also recall Norman Lamont in September 1992 and the infamous Black Wednesday crisis – at the point interest rates were raised from 10% to 15% in just one day.
So, what will this interest rate actually do to the Rotherham housing market?
Well, if I’m being frank – not a great deal.
The proportion of Rotherham 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 per cent, down from a peak of 72.9 per cent in the autumn of 2011.
If more Rotherham people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Rotherham people having to sell their Rotherham properties (or have them repossessed in the worst case scenario) because they can’t afford the monthly repayments.
However, and this will be of interest to both Rotherham homeowners and buy-to-let landlords, it’s important to be mindful that for every 1% increase in the Bank of England interest rate, it will cost the average Rotherham homeowner on a variable rate mortgage £52.86 per month
So, what next?
Because UK inflation levels are at 2.9% (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2% using various monetary tools (one of which is interest rates) – you can see why 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 ongoing negotiations (or lack thereof!), but fundamentally the British economy is in decent shape.
People will always need housing and as we aren’t building enough houses (as I have mentioned many times on this blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Rotherham property market will always remain strong for both homeowners and landlords alike.