One of the most common concerns for any homeowner at any given time is likely to be what happens to interest rates. It’s an issue that has come into sharper focus since the EU referendum was held 41 months ago. In a week’s time, the UK will go to the polls for the third election in four years in the hope of achieving some political clarity – not just on Brexit, but a myriad other issues as well.
Over the last few weeks, the three key parties have set out their stall on both Brexit and their spending plans. In very simplistic terms, the Conservatives will take the UK out of the EU, Labour would intend holding a confirmatory referendum, and the Liberal Democrats would revoke Article 50 and the UK would remain in the European Union.
On Brexit, the parties couldn’t be further apart. Where they’re united, however, is on their spending plans. All of them have promised significant investment in public services.
For all the worry about interest rates, the simple fact is that the Bank of England base rate has remained pretty stable for the past decade. Since the immediate aftermath of the financial crash in 2008, we’ve seen a net rise of just 0.25% to the current level of 0.75% – a figure that was again confirmed by the Bank last month.
While savers and investors are the casualties of low-interest rates, they’re always good news for borrowers.
But there has been plenty of speculation recently about what various outcomes of next week’s poll will mean for the base rate and, subsequently, for homeowners either on a standard variable rate or at the end of a fixed-term product.
According to the website This is Money, some economists believe interest rates will rise under a Tory government that successfully delivers Brexit but are likely to fall under a majority Labour government or hung Parliament, with a reduction coming as early as January in the event of the latter outcome.
Consumer and business confidence will play a large part in what happens next, but the impact on mortgage borrowing of any given election result can’t be accurately predicted.
More useful, perhaps, is for those who are considering venturing into the mortgage market – whether to buy their first home, move, remortgage or switch to a better deal – to assess their immediate and future financial circumstances.
Here are a few things to think about:
Can I afford my mortgage if the interest rate doubles?
While this is an unlikely scenario in the short term, it’s not totally impossible. However, it’s worth working out whether you could afford your mortgage repayments if your lender’s rate suddenly increased by 0.75% or 1%.
If the answer is yes, then to a certain extent you can stop trying to second guess the economy and make your decisions based on how insulated you are against external factors.
If you decide you wouldn’t be able to afford a mortgage that increased suddenly, then you’ll need to consider whether you should be making any long-term decisions about your mortgage right now, or whether you’d be better off taking a short-term position.
For example, maybe switching to a better fixed deal for a couple of years will let you see how the markets react and evolve, and also give you time to strengthen your own financial position.
But wherever you think you might be heading when it comes to your mortgage, these are not things you need to consider alone.
In fact, talking to a professional mortgage broker is probably the best possible option, since he or she will have a better understanding of the market, the products you might want to think about and whether you’ll meet the affordability criteria imposed by most lenders in today’s mortgage market.
If you’re not sure what to do about your mortgage and need some common sense advice to help you to plan for your future, get in touch with one of our very friendly advisers who’ll be happy to discuss things with you informally and give you some useful insight into how best to move forward.
At Oportfolio, we’re London’s mortgage experts – and we’re ready to help you achieve success, whatever your plans.
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