Decline To Rise Interest Rates Welcome In NI
Mortgage payers have been given an early Christmas present in the form of the Bank of England’s decision not to increase interest rates.
That news is particularly welcome in Northern Ireland, where 41% of homes and 68,000 owners remain in negative equity. In addition, the inability to pay capital loans when the term on interest-only mortgages expires is a continuing worry.
Right now people are relieved to have side-stepped the issue once again in the second-last month of a year which was to have seen an increase.
Throughout 2015 home-owners waited in trepidation for the announcement of a rise. But, for now, it’s a case of as you were which means they breathed a collective sigh of relief on learning that the base rate is to continue at 0.5%.
For how long? Ah, that’s the $1million question. No-one is quite sure.
The current interest rate has remained unchanged for so long that it almost merits the adjective ‘fixed’. Certainly the current interest rate is not what we were all led to believe by experts, ranging – in terms of status and knowledge – from the Governor of the Bank through to every business correspondent in the national media. Everything and everyone suggested it was simply a question of ‘when’ rather than ‘if’ in 2015 a base interest rate rise was announced.
All of those supposedly in-the-know appeared to be singing the same tune, the only discordant note amongst them being the level of the anticipated interest-rate increase. Half of one percent was the figure on which the vast majority had agreed, though a few went either side of that by estimating a quarter or three quarters.
Throughout the year, however, the decision to increase the rate kept being nudged backwards. And now, with the global economy’s growth having slowed right down, we can safely say it is not going to happen at any point in the near future.
Indeed, at this stage, most of the City experts are suggesting the second quarter of 2016 at the earliest. And some believe it may even be 2017 before we see movement.
No, November 5 was not an occasion for fiscal fireworks. Instead Guy Fawkes Day saw the Bank of England’s decision-making Monetary Policy Committee once again vote 8-1 in favour of leaving the interest rate where it has been since March 2009. As has become the norm, Ian McCaffrey was the solitary dissenter in proposing an increase.
Of course, those struggling with mortgage repayments are delighted at what amounts to a stay of execution. It buys them to take stock, make decisions and prepare for what lies ahead.
The fact that the train is running late does not mean it won’t be arriving. It will, and when it does there will be implications for all concerned. The concern right now is the exact nature of those implications.
Those in negative equity, those with interest-only mortgages, those experiencing difficulty with repaying mortgages at a time of record low interest rates must make maximum use of this reprieve.
If the rate continues at 0.5% until March 2016 – little over three months from now – that will represent an unprecedented seven-year run at this level. So it is inevitable that the bubble must burst and when that happens, there will be fall-out.
Already the Bank of England’s Governor, Mark Carney, is warning that “good domestic performance is set against foreign weakness”. The emerging markets to which he also referred – most notably China – are vulnerable to higher interest rates in the USA.
The Bank of England now has scaled down its forecasts of growth in the UK and globally. And with inflation still below 1%, that remains significantly below the BoE’s 2% target figure and remit.
So what are your options regarding your home and the mortgage on it? Can you improve that position? Realistically, what do you need to happen? Answer those questions before that train comes in. Give us a free call today on 028 9592 2714 or contact us hereand see how we could help you.
How is home equity calculated?
Home equity is calculated by subtracting the amount you still owe on your mortgage from the current market value of your home.
Can you have negative equity?
Yes. With standard loans, your home equity will increase over time. With negative-amortizing loans — a loan with monthly payments less than the interest rates — your equity decreases over time as your owed balance increases.