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How Will The Interest Rate Rise Affect Me?

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Times Online - August 03, 2006

Analysis: Impact on borrowers

Andrew Ellson explains what higher borrowing costs will mean for homeowners

Will I pay more on my mortgage?

Nine banks or building societies including Cheltenham & Gloucester and the West Bromwich have already increased their standard variable and discount rates by 0.25 per cent and the big five are expected to follow next week. Borrowers on tracker rate deals will automatically see their mortgages increase by 0.25 per cent. This means homeowners with a interest-only mortgage of £100,000 will pay an additional £20.83 a month or £250 a year. Those who owe £250,000 will have to find an extra £52.08 a month or £624.96 a year. Borrowers on fixed-rate deals will see no change in their in their monthly repayments.


Are interest rates likely to increase further?

Opinions are divided on the future for interest rates but economists agree that if inflation continues to rise the Bank of England will be forced to hike borrowing costs again. John Butler, chief UK economist at HSBC, says: "The Bank has left the door open for future rate rises but we still believe the consumer faces a number of headwinds so for now, our view is that interest rates will stay at 4.75 per cent for the remainder of the year."

What is the likely impact on the housing market?

Most experts predict that today’s rate rise will reduce the demand for mortgages, taking some of the heat out of the housing market. Ed Stansfield, of Capital Economics, says: "If rates go up another two or three times we might see a substantial house price correction."

Some very interesting comments in the "Have your say" section too!...

Affordability isn't a problem because interest rates are rising - it’s a problem because houses are ridiculously overvalued.

The main reason they are ridiculously overvalued is because monetary policy has been too lax, allowing people to borrow enormous sums of money to chase house prices higher.

Therefore, this initial rise in interest rates should help put a cap on house prices, or perhaps even bring them down a little. And any further hikes are likely to bring prices down even more.

So even though first-time buyers might not be able to borrow as much, they’ll find their hard-saved deposits buy them a bigger chunk of house.

Yes the rate rise will halt the housing market ,but its already too high ,first time buyers can`t get on without taking too many finacial risks ,the buy to let buyers will soon dry up i still remember the dot com bubble and this look like another bubble imo.

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  • 301 Brexit, House prices and Summer 2020

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      • down 5% +
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      • Even
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      • up 5%

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