How will the Interest Rate rise affect Burton residents?

Burton on Trent homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25% to 0.5 %. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.

Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate..

The average Burton on Trent mortgage is £82,477

So, I have to ask by how much Burton on Trent homeowners (on variable rate or tracker mortgages) will see their repayments increase?

In the DE13-DE15 postcode there are 13,463 homeowners with a mortgage, of which 5,784 have a variable rate mortgage (the remaining have fixed rate mortgages).

The total amount owed by those DE13-DE15 homeowners with those variable rate mortgages is £477,022,393, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £643.09 per month and now its £660.27 per month… meaning

The interest rate rise will cost Burton homeowners on average an extra £206.19 per year

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s.

Many of my readers talk of interest rates at 17% when Sir Geoffrey Howe increased them to try and combat the hyperinflation from the fallout of the financial crisis that hit Britain in the 1970’s and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate actually do to the Burton on Trent housing market?

Well, if I’m being frank – not a great deal!

The proportion of Burton homeowners with variable rate mortgages – and thus directly affected by a Bank of England rate rise – will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3%, down from a peak of 72.9% in the autumn of 2011.

If more Burton on Trent people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those people having to sell their properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.

However, and this will be of interest to both Burton homeowners and Burton landlords …

.. for every 1% increase in the Bank of England interest rate, it will cost the average Burton on Trent homeowner on a variable rate mortgage £68.73 per month

So, what next?

Because UK inflation levels are at 2.9% (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2% using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape.

People will always need housing and as we aren’t building enough houses – as I have mentioned many times in the Burton on Trent Property Blog – we might see a slight dip in prices in the short term, but in the medium to long term, the Burton property market will always remain strong for both Burton homeowners and landlords alike.

I have to thank my colleague in Derby, Simon Joyce, for allowing me to use his article… Simon initially wrote the article based on Derby data and I thought it would also be of use to my Burton readers..  with Burton data of course!

Please contact me should you wish to discuss anything ‘Burton Property’! I’m on 07973 666229.

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