Rob Clifford: Let’s end the speculation about marginal base rate rises

Michael Lloyd

March 20, 2019

It’s time to end unhelpful speculation about the impact of marginal interest rate rises in the future, Rob Clifford, director at Stonebridge and chief executive of SDL Mortgage Services, has argued.

It’s a decade since the Bank of England dropped its base rate to a historic low of 0.5% – but, with no change to the current 0.75% expected this Thursday, Clifford predicted the latest announcement to be another non-event.

He said: “As tempting as it might be to say that homeowners will breathe a sigh of relief, the truth is they are unlikely to base any future mortgage and housing decisions on interest rates alone.

“Like almost two-thirds of people who bought a property last year, their decision is more likely to be motivated by life circumstances than the economy or the political rollercoaster.

“What’s more, this apparent obsession with interest rates can mask more material problems in the housing market, particularly the scarce availability of property in parts of the UK, and the challenge some people still face in raising the substantial deposit typically required.

“If rates do happen to rise to 1% – as they are predicted to do later this year or early next – the prophets of doom will be quick to dramatise what impact this could have on household finances.”

However, Clifford went on to say increase of 0.25% on a £150,000 mortgage could equate to just £18 extra in monthly interest payments, which is hardly crippling.

He predicted most people will simply cut their cloth accordingly, possibly forgoing their gym membership or meals out if they are feeling the affordability strain.

The cost increase facing a typical borrower is extremely small when you consider that mortgage lenders typically ‘stress test’ applicants’ mortgage affordability for interest rates of up to 9%, an almost inconceivable rate in today’s world.

Clifford added: “Finally, we need to remember that competition in the market is continuing to drive mortgage choice and availability, even among those who would traditionally have struggled to get a mortgage.

“Banks and building societies have reacted to consumer demand for more certainty with fixed rate deals, while buyers today normally have their pick of five or six deals to suit their particular circumstances.

“On top of the zero deposit mortgages now available from some lenders, Virgin Money has just announced that it will consider applicants with satisfied CCJs and defaults on their credit history – a sign of confidence, even in the current economic climate.”

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