 |
Finance News |
Homeowners would 'struggle' to cope with rise in interest rates
Sunday, February 06 13:05:38
MORE than half of homeowners would be worried about meeting their mortgage payments if interest rates rise, a survey by Direct Line has revealed.
They said they would be under pressure even if payments went up by £100 a month or less, yet many admitted they would take no action to combat the rise. Only 3% would look for a better deal.
The Monetary Policy Committee meets this week to discuss changing the interest rate.
"The experts are predicting a brighter picture and interest rates are historically low," says Paul Hemingway, mortgage manager at Direct Line.
"But even in this environment, homeowners could make massive savings and secure peace of mind by shopping around for a better mortgage deal."
Interest rates have remained unchanged for six months since the committee raised the base rate to 4.75% - the fifth increase since November 2003.
But most economists believe the increases have achieved their objective of slowing down house price increases and that the committee will announce on Thursday that they have decided to leave the base rate unchanged.
Tim Crawford, group economist for Bank of Scotland, said: "It is apparent that the five interest rate increases between November 2003 and August 2004 are beginning to take effect and, together with affordability issues for first-time buyers in particular, are contributing to slower house price inflation. We expect this trend to continue in 2005."
Homeowners, however, seem more pessimistic. According to the Direct Line survey, 38% expect interest rates to rise. Over the longer term, more than half expect rates to rise by the end of the year.
Like other experts, Royal Bank of Scotland chief economist Andrew McLaughlin takes the opposite view. "We expect UK interest rates to remain on hold at 4.75%," he said. "At the very least, rates look set to remain on hold for some time while the MPC considers how the economic year is taking shape."
Changes in interest rates directly affect those with mortgages linked to the lenders’ standard variable rates, tracker rates or discounted rates. Borrowers with fixed-rate loans are not affected whether the base rate rises or falls.
Whatever happens to rates this week, there are still problems for first-time buyers in Scotland, with many cities priced out of their range.
This year’s Bank of Scotland Annual First Time Buyer Review shows that of the 47 main Scottish postal towns, 38 were unaffordable for most of those wanting to buy a first home.
|
