Press Releases

Press Comment:
How the interest rate hike will impact mortgages

2 August 2018

  • Gemma Harle

If you are covering today’s announcement that the Bank of England’s Monetary Policy Committee’s has decided to raise interest rates, please see the following comment about its impact on the mortgage market by Gemma Harle, managing director of Intrinsic mortgage network.

Gemma Harle says:

“Speculation that the Bank of England was going to raise interest rates has been rife in the market and today’s announcement will come as no surprise to many. Due to this, many lenders will have already factored into their pricing this hike in interest rates.

“Today’s announcement represents only the second time there has been an interest rate rise in a decade which means many people are in for a shock as they will have not experienced such an increase and will therefore need to adjust their current spending to accommodate this rise.

“The knock on impact of this, is that it may make people’s mortgages unaffordable. This will be especially true for mortgages that were taken out prior to the 2014 introduction of stress testing at the application stage. Those customers whose current fixed rate is coming to an end and were expecting to get a cheaper or the same fixed rate may also be disappointed.”

 

First Time Buyers

“However, first time buyers are likely to suffer the most due to the rise. Higher mortgage costs relative to their earnings will cause this group to be more stretched and have less cash month to month. According to figures from UK Finance the average age of a first time buyer is now 30, and has a gross household income of £42,000, and a loan to value of 85.0%.

Further figures from UK Finance, show that first time buyer advances massively increased from 26,700 in April to 32,200 in May 2018, which is a 20.6% increase month on month and 8.1% year on year. This positive increase hopefully is not quelled by today’s interest rate rise.

“To make sure people still are able to get on the property ladder, there needs to be more innovation in the mortgage market aimed at specifically helping first-time buyers. The introduction of the Post Office’s intergenerational mortgage is a good example of a product that better reflects the housing market that first-time buyers now have to contend with.

“Other products, such as the re-emergence of 100% mortgages may be too good to be true. Although, this new iteration of the 100% mortgages does differ from those offered in 2008, which contributed to the financial crisis, it is crucial all home buyers seek financial advice to assess the affordability of all the mortgage products on offer to avoid getting into financial difficulty.

 

Mortgage Prisoners

“The FCA’s Mortgage Market Study announced that it wanted to tackle the systemic problem of mortgage prisoners. However, the rise in interest rates will only serve to compound the problem they face and will continue to cause them to be trapped by unaffordable repayments. 

 

FOR MORE INFORMATION CONTACT

Alex Berry
023 8072 6260
07741 151931
 

Notes to editors:

Intrinsic is part of Quilter plc, a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £116.5 billion in customer investments (as at 30 June 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• Private Client Advisers to Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.

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