Three Year Anniversary of Low Base Rate- Homeowners Fear Future Rise

CHESTER, England, March 5, 2012 /PRNewswire/ --

• A quarter of homeowners have benefited from lower base rate
• Cost of living and rising utility bills have wiped out the extra cash
• 23 per cent of borrowers have overpaid on their mortgage repayments

Today marks the third anniversary since the Bank of England base rate dropped and remained at a record low of 0.5 per cent. Research by MoneySupermarket has found a quarter of homeowners have benefited from reduced mortgage repayments over this time.  

Despite this, Britain's number one comparison site found almost half (43 per cent) used the additional cash to pay rising utility bills and cover the increased cost of living. There is some good news however; as almost a quarter of borrowers with reduced monthly payments (23 per cent) have used the extra cash to overpay their mortgage.  

Clare Francis,  mortgage  spokesperson at MoneySupermarket, said: "Over the last three years, some borrowers have benefited from the low interest rate environment with reduced monthly mortgage repayments. However, with the high cost of living, including bills, food and transport costs, many have been forced to use the 'extra' cash from their reduced mortgage repayments to bridge the gap of their shortfalls for essential outgoings."

The research also found a future base rate rise would have a real impact on homeowners' finances, with over a third (35 per cent) stating they would be worse off if it were to increase, and a further 26 per cent stating they would have to make cutbacks to their day-to-day spending. On the flip side, some felt they would benefit from a rate rise as they would get a better return on their savings. A base rate rise of just 0.5 per cent would mean a £43 per month jump in mortgage payments for homeowners with a £150,000 variable repayment mortgage, currently paying 4.00%.  If the base rate is pushed up by one per cent, then their monthly repayments would leap by £85 a month.

Clare Francis continued: "Whilst base rate is not expected to rise in the immediate future, it is clear borrowers have got used to lower repayments and their finances could be severely impacted should there be any change to the rate.

"And as the recent news that Halifax is hiking its SVR from 3.50% to 3.99% from May illustrates, some borrowers won't necessarily have to wait for the base rate to rise before their mortgage payments start to climb again.

"Anyone currently sitting on their lender's SVR should therefore consider remortgaging now. With base rate expected to remain unchanged for the foreseeable future, some may be willing to stick with a variable rate deal. If this is the case, a tracker is a safer option than a discount because tracker mortgages are directly linked to base rate and changes will mirror the movement of base rate. Discounts on the other hand are linked to the lender's SVR so there is a risk that the mortgage rate may go up even if base rate remains unchanged.

"If you are worried about higher mortgage repayments, a fixed rate will give protection against future base rate increases. Five-year fixes are popular at the moment. The risk of going for a shorter-term fix is that the fixed period could end as interest rates are rising so you could find yourself having to remortgage when rates are higher than they are at the moment."

Notes to Editors:

Opinium Research carried out an online survey of 2,010 UK adults aged 18+ from 24 to 27 of January 2012

90% LTV Numbers Feb 2012 v March 2009

    Number of Products Number of Products
          Feb 12            March 09
           316                135

Best Buy Mortgage Products March 2009

                              first direct 2.99%
    Lowest 2 Year Fixed     GBP898 fee Max 75% LTV
                                Britannia 4.24%
    Lowest 5 Year Fixed     GBP999 fee Max 60% LTV
                             The Co-operative Bank
                                     2.79%
    Lowest 2 Year Tracker   GBP995 fee Max 60% LTV
                              first direct 2.89%
    Lowest Lifetime Tracker   GBP799 fee Max 75%

Best Buy Mortgage Products Feb 2012

                                  HSBC 2.24%
                             GBP1,999 fee Max 60%
    Lowest 2 Year Fixed               LTV
                               Chelsea BS 3.19%
                             GBP1,495 fee Max 70%
    Lowest 5 Year Fixed               LTV
                              first direct 1.99%
                             GBP1,499 fee Max 65%
    Lowest 2 Year Tracker             LTV
                                  HSBC 2.39%
    Lowest Lifetime Tracker GBP999 fee Max 60% LTV

Sourced by http://www.MoneySupermarket.com/  22.02.2012

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SOURCE moneysupermarket.com