Nov 5, 2017
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How Can the Interest Rate Rise Influence the Investment Attractiveness?

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For the first time in a decade, the Bank of England raised the base rate. Let’s see how this will affect the owners of houses, who need to pay the mortgage amount.

Although the interest rate increased insignificantly by 0.25% to 0.5%, it happened the first time over the past 10 years. Most mortgage loans will rise in price, and savers will still look for the best deals.

How much will the price for a mortgage increase?

If you are a typical home buyer for £ 175,000, the average mortgage price will increase by £ 22 a month. Also, it means that 500,000 borrowers will see how their interest rate has risen from 2.25% to 2.5%. That is, now they will not pay 763, but at 785 pounds a month, gradually paying 175 000 for the mortgage.

This diagram shows how an increase in interest rates will affect the rise in mortgage payments. The more significant the amount of the mortgage, the higher its monthly fee.

If I have fixed the mortgage, will I pay more?

Yes and no. At the moment, 57% of homeowners have fixed their payments, and therefore the fees for the month will remain the same regardless of the growth of the interest rate. However, the remaining amounts were fixed only for a specific time (for example, for 2 years). So, at the end of this period, the amount of payments will equal the mortgage rate set by the Bank of England. For example, in Santander Bank, the rate will rise from 4.49% to 4.74%.

Will the interest rate continue to rise?

Yes, this growth is expected. Presumably, next year the rate will grow by the next 0.25%, and then, possibly, will grow by another 0.25%. As a result, the growth of the base rate of the Bank of England will be 1%. Besides, there is an opinion in some circles of economists that the interest rate can rise by as much as 3%.

Will this increase affect the value of houses?

In any case, the growth of interest rates will increase the value of real estate, but it is still not clear how critical it will be for buyers. According to the report Nationwide, in October 2017, the price of real estate rose by 0.4%. According to Ashley Osborn – the head of the British real estate company, most investors have fixed interest rates on their mortgage loans. So, the increase in prices for them will not affect.

Will interest rates on savings begin to improve?

While banks always raise mortgage rates, the increase in savings rates, as a rule, occurs later. But some lenders have already stated that they will pass 0.25% to depositors. In the case of Nationwide, this suggests that most “savings” will improve. The community of Newcastle builders added that it would sufficiently correspond to the growth of all its investors. But keep in mind that banks tend not to chase depositors’ money (they still enjoy the advantages of UK government and bank plans for their financing), which means that most investors will continue to struggle for getting more than 1% of the stake in the standard bank Isa.

It would seem that a slight increase in interest rates as a whole significantly increases the total amount of mortgage payments. It is important to know everyone who plans to invest in real estate. Also, think about fixing your mortgage to secure it in the future. Have reliable deposits and profitable investments!

Article Categories:
Investing · Real estate

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