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Increase in Interest Rates to cost Horncastle Home Owners £164.92 a year

Article Simon Jory 2017-12-07
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Increase in Interest Rates to cost Horncastle Home Owners £164.92 a year

Horncastle homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.

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, most of the big banks have increased their standard variable mortgage rate.

The average Horncastle mortgage is £65,968

By how much will Horncastle homeowners on a standard variable rate or tracker mortgage see their repayments increase?

In the LN9 postcode there are 1,215 homeowners with a mortgage, of which 522 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those LN9 homeowners with variable rate mortgages is £34,432,981, meaning the average monthly mortgage payment for those home owners before the interest rate rise was £514.37 per month and now its £528.11 per month - meaning

The interest rate rise will cost Horncastle homeowners on average an extra £164.92 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. Sir Geoffrey Howe increased them to 17% to try and combat the hyperinflation following the financial crisis that hit Britain in the 1970's. Then in September 1992 there was Norman Lamont with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate do to the Horncastle housing market?

Well, if I'm being frank - not a great deal. The proportion of homeowners with variable rate mortgages 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 people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those people having to sell their properties because they can't afford the monthly repayments or even worse case scenario, have them repossessed.

However, and this will be of interest to both homeowners and buy to let landlords...

every 1% increase in the Bank of England interest rate will cost the average Horncastle homeowner on a variable rate mortgage an extra £54.97 per month

So, what next? Because UK inflation levels are at 2.9 per cent, the country's highest rate since April 2012, and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools including interest rates - you can see why further interest rate rises might be on the cards to dampen inflation.

There remains uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and we aren't building enough houses, we might see a slight dip in prices in the short term, but in the medium to long term, the property market will remain strong for both homeowners and landlords alike.

Sources:

  1. The lending is taken from the Bank of England at Postcode Sector level
  2. Number of Mortgages taken Census at Postcode sector level
  3. Average length of Mortgage taken at 18 years
  4. Inflation from Bank of England
  5. Average Interest rates / Split of Fixed and Variable - Bank of England

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Simon Jory

Simon Jory

Simon has been in Estate Agency for over 32 years and is a Fellow of the National Association of Estate Agents. Having working in all kinds of changing market conditions he is well placed to advise on how best to sell your home.

Anne Pearce

Anne Pearce

Anne prides herself on working to the highest standards and believes everyone should receive the best possible customer service. With over 20 years' experience she will not miss and opportunity.

Dawn Bannister-Law

Dawn Bannister-Law

Prior to moving to Lincolnshire, Dawn was a valuer for more than 19 years in Bakewell in the Peak District. Dawn strongly believes buyers, sellers, landlords or tenants are all as important as each other

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