Warnings from the Bank of England that interest rates would rise six fold by 2017 means higher mortgage costs for almost three million households.

Governor of the Bank of England Mark Carney has said interest rates could increase to to 3.0% in the next three years or six times the current 0.5% level.

For buy-to-let investors a fixed rate mortgage would secure the mortgage costs each month and avoid the risk of of rising base rates.

The UK economy is improving and growth is expected to be 3.3% in the first half of this year according the the OECD. This has prompted Mark Carney to plan for an interest rate rise to somewhere between 2 and 3 per cent by 2017.

Homeowner cost to rise

Higher interest rates mean mortgage costs will rise and remortgage buyers can select fixed rates keeping the interest at a fixed level for a period of time, usually two or three years.

If a homeowner selected a variable or discounted mortgage rate the amount to be repaid each month would increase as interest rates are raised by the Bank of England.

For a £150,000 repayment mortgage, a 2.0% rise would mean an extra £161 per month and for an interest only mortgage this would add an extra £250 per month.

For older equity release mortgage buyers, fixed rates can typically be secure from interest rates of 5.9% upwards without any evidence of earnings which is important for borrowers with only pension income.

The Office of Budget Responsibility (OBR) have estimated that of the 11.2 million mortgages in the UK about 24% of them would need to cut their costs, re-mortgage their home or increase their income to afford the rise in mortgage payments.

House prices would increase pressure

The OBR forecasts the housing market to rise by 30% by 2019 and by 8.9% in 2014 increasing the pressure for first time buyers to purchase their homes following popularity of the government’s Help to Buy scheme.

Already about 8% of mortgaged homeowners pay 35% of their income on repayments and the Bank of England predicts this figure to double if interest rates rise by 2.5%.

If interest rates reach the higher level of the Banks range of about 3.0% this would mean mortgages would cost 6.0%, increasing the number of people paying a third of their income on mortgage payments.

For first time buyers and home movers a fixed rate mortgage offers the certainty of repayment amounts typically for a 2-year or 5-year introductory offer.

What are your next steps?

Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to spend on anything such as buy a more expensive home or gift to a family member or friend.

Learn more by using the mortgage monthly cost calculators, property value tracker chart and equity release calculator. Start with a free mortgage quote or call us and we can take your details.

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