Rate rises are already doing the trick for the housing market so it's hold for now

Posted on 7 June 2007

  • 1% rise in 10 months is having the desired effect says Ray Boulger of Charcol.co.uk
  • August looks to be the crunch month now

“There is little doubt that the four interest rate rises in the last 10 months are now having the desired effect on the housing market.  As we enter the warmer months of the year prices are certainly cooling off, but it remains to be seen whether we have reached the peak of this cycle.  The market is absolutely anticipating another rise by August but it is not yet a done deal,” says Ray Boulger of leading independent mortgage adviser, Charcol.co.uk.

Boulger continues, “The majority of economists are calling for a rise in July but if we need another increase it would be more logical for the MPC to wait until the next quarterly inflation report in August before making that decision.  With the total previous rise of 1% looking like it is doing the trick, I believe the MPC will want more time to see if this is indeed the case.”

What should borrowers do now Ray?

“With the market fully factoring in another quarter point rise, and partially a second one to 6%, most fixed rates look expensive unless Bank Rate goes beyond 6%.  However, many borrowers will still prefer the security that a fixed rate mortgage provides.  Currently, the best two year deals on the market are priced around the 5.3% mark.

“Arguably, better value can be found in the tracker market with rates starting much lower.  For example, Halifax and BM Solutions both offer two year tracker mortgages, with a fee of £1,499, at 0.51% below Bank Rate, giving a current pay rate of 4.99%. On remortgages a free valuation and free legals are available. Even with two 0.25% increases in Bank Rate this will still be competitive with today’s best two year fixed rates.

“The other solution for some borrowers may be to take deals with no early repayment charges and perhaps a drop-lock, which allows them to play the waiting game.  Whatever borrowers think is right, good advice could well be critical to getting the most from their mortgage in this current environment.”

Points of interest – falling off fixed rates

  • Two years ago, the best two year fixed rates were priced at around 4.5% - they currently stand nearly 1% higher than that, around 5.5%.  Should you be someone who took one of these rates then if you remortgage in time to get on a new fixed rate deal now you will pay £116 extra each month for a £200,000 repayment mortgage.  This is represented by the blue boxes below.
  • However, should you not remortgage in time and move to a lender’s standard variable rate then the payment shock will be far greater.  For a £200,000 mortgage the increase will be some £400 per month from a 4.5% fix to an SVR of 7.75%.  Even on a smaller mortgage of £100,000, the same calculation shows you will be paying £200 more –an increase of 36%

Payment Table

Click here for a mortgage payment table (pdf format) that shows how much a monthly payment will be, for both interest-only and repayment, on a 25 year mortgage for the amounts shown.

BORROWERS SHOULD CONTACT 0800 358 5560