In recent columns I have used the word 'panic' to describe
the possible rush to secure a good mortgage deal before they vanish when rates
rise, and also made comment on how lenders may be feeling in terms of possibly
missing their annual lending targets. The latter should lead to some good deals
which I feel sure will hit the market in the last few months of this year.
However, there is another important term I think worthy of
mentioning now and this is ‘Payment Shock’. A well worn term during the
mid to late 90's and one which I think Mr Jannels 'senior' may have
played a part in coining! It describes the potential increase in
monthly mortgage payments when an incentive period, for example a fixed rate,
comes to an end and the mortgage moves to the lenders standard variable rate.
It is worth reflecting that a one percent uplift on a mortgage of £200,000 may
mean a monthly increase of up to £166.66 and, in many cases the rate
may well increase substantially more than this. Imagine the impact of a
two or three percent rise! Not unusual if the lenders standard variable rate is
in the late four percent range.
We try to keep a listening ear open to those in our sector
who are considered 'gurus' and their predictions on interest rate rises and
when they will happen. In truth, no one can be certain, other than that they
will rise. It is important therefore for mortgage borrowers to consider
the potential of any rate increase (payment shock) and how it will affect them.
A good time perhaps to consider a new fixed rate?
Finally, a commentator once wrote about consumers carefully
researching prices for a new dishwasher or fridge and then shouting from the
rooftops when they have saved £20 from shopping around. And, why not? Yet the
financial press and advisers alike will regularly lament on the fact that
borrowers will allow their monthly mortgage payments to continue regardless
when they could be saving multiples of £20 every month!
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