In historic columns I have used the word 'panic' to describe the
possible rush to secure a good mortgage deal before they vanish when rates rise. It’s not quite at that stage just yet, but we
have seen some rate rises this week from both Santander and TSB.
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 per cent uplift on a mortgage of £200,000 may mean a
monthly increase of circa £166 and, in many cases the rate may well
increase substantially more than this. Imagine the impact of a two or three
per cent rise! Not unusual if the
lenders standard variable rate is in the late four per cent range. We know one
that’s over six per cent!
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,
although this has been mentioned for over ten years! 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 especially when such a saving could go
towards paying for life insurance, that they may not currently have!
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