30 Jul

Property owners cautious over rate rise

Property owners cautious over rate rise

Many property owners remain uncertain about the impact a change in the base rate of interest could have on their mortgage.

According to the recent Legal & General Mortgage Mood survey, 68 per cent of homeowners are fearful of a rise in mortgage costs over the next 12 months.

However, the majority do not believe that the rate of interest on their mortgage will increase by a substantial about as 45 per cent feel the base rate will only rise by less than one per cent, while 52 per cent do not predict that it will increase by more than two per cent over the next two years.

Just 12 per cent are forecasting a rise of three per cent over the next 24 months - revealing that many homeowners have become very used to the historic low rates over the past few years.

A quarter of those surveyed revealed that normal rates for a mortgage should be between 1.1 per cent and three per cent.

While younger people had even more favourable opinions about normal rates, with 26 per cent of aged between 18-24 years of age believe a standard rate would be up to one per cent.

Jeremy Duncombe, of the Legal & General Mortgage Club, said: "It is encouraging to see that a large proportion of homeowners understand that a rate rise is likely over the next 12 months, [but] despite this market awareness, the majority are still not actively seeking to remortgage while they have the opportunity to take advantage of historically low rates."

He added this is because many do not have a clear picture of what normal rates should be.

"In the short-to-medium term, rates will go up and the market will return to levels we have seen previously. Borrowers should be planning now for a rate rise, and have a strategy in place which will enable them to cope with increased mortgage repayments," said Mr Duncombe.

The uncertainty over possible plans by the Bank of England to increase the base rate of interest appears to have had an impact on the housing market and there has been a drop in sales.

Seasonally-adjusted figures from HMRC show that the number of house sales fell by 0.2 per cent in June to total 102,680 - down from 102,860 in the previous month.

Although this is still 15.7 per cent higher compared to the same point in 2013, it is down from the post-crisis peak of 109,500 recorded in February this year.

Experts are also predicting that the changes to affordability under the new checks introduced following the Mortgage Market Review (MMR) may also have had an impact on the number of people moving or stepping on to the property ladder.

However, figures from the British Bankers' Association have confirmed that mortgage approval volumes for house purchase recovered slightly in June following declines in previous months as both mortgage providers and buyers start to become accustomed to the recent MMR changes.ADNFCR-1222-ID-801738561-ADNFCR

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