Forty-nine per cent of Britain’s borrowers haven’t reviewed their mortgage in the last three years. If you think that’s a fairly astounding statistic, consider this one: according to Unbiased.co.uk, just over 50% of borrowers don’t actually know what their interest rate is. How’s that for apathy?
Still, we suspect that a good few of those who haven’t been paying much attention to their mortgages over the last few years – a period in which mortgage rates have hit record lows – might soon start paying attention. Why? Because rates are on the rise.
Last week, the Royal Bank of Scotland and NatWest raised their standard variable rate (SVR) from 3.75% to 4% and HBOS raised its rate from 3.5% to 3.99%. Bank of Ireland has followed suit, planning to raise its 2.99% rate to 4.49% by September 2012.
You might think that isn’t a big deal and in a way it isn’t: the HBOS move represents a rise of around £300 a year on each £100,000 of mortgage debt. However, it does matter in that it marks a change. It seems safe at this point to say that mortgage rates have bottomed – from here, regardless of what happens with the base rate, the only way for SVRs is up.
That’s partly because the price of raising money in the wholesale markets (in order to lend it out) has been rising for some time, and partly because the banks need to pay better interest rates on deposits (and need to charge more on loans to do so).
It also matters because it is likely to affect a lot of people (HBOS alone has 850,000 people on its SVR), and also because, when the price of credit rises, the price of houses tends to fall. The rise isn’t huge, but given that, according to Capital Economics, one in six people already have trouble meeting their mortgage payments, it might just push a few forced sellers into the market – and a few prices down.
On to the good news – for those with houses in London, at least. It seems that the hype about how much you can earn renting out your house for the Olympics was, for once, not just hype. Writing in The Sunday Telegraph, Leah Wild describes how within a week of listing her house for rent at £2,995 a week, “all three Olympic weeks were booked”, with 50% of the rent paid up front. The listing, on Rentduringthegames.com, cost her £25.
There’s more. Minor improvements made to the house in advance of her tenants arriving are tax deductible against her earnings. So she’s getting a new oven and re-tiling her shower room. That makes the £25 she paid to get her tenant the best £25 she has “ever invested”. Should she happen to have a mortgage with HBOS it will also make the rise in her repayments look like peanuts.