Brits expect rates rise

The majority of Brits are expecting interest rates to rise again this year.

Lloyds TSB has published its Consumer barometer in which it revealed that most of us (77 per cent) are fully expecting another increase.

This is bad news for those with a mortgage, loan or credit card, however, the fact that most borrowers are expecting a rise may help them to be properly prepared.

Confidence in job prospects and job security fell during May, with more people believing that their position is vulnerable compared to the month previous.

“Last month’s interest rate rise did little to convince consumers that rates had reached a peak,” said Trevor Williams, chief economist at Lloyds TSB Corporate Markets.

“In line with the prevailing opinion of the financial markets, consumers believe rates will increase further this year.

“We’re just beginning to see the impact of May’s rate rise on consumers with sentiment on job security and prices starting to cool.

“Even so, there is still some way to go before the Bank of England will be reassured – they have emphasised that for inflation to stay low, inflation expectations must be anchored at low levels,” he added.

Borrowers concerned that interest rates are likely to increase in the coming months should try to account for a rise in repayments when budgeting.

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Consumers were ‘expecting’ rate rise

The latest interest rate rise is not going to have too much of an impact on consumers as most people were expecting it.

That is the opinion of Lloyds TSB and its Consumer Barometer which shows that pessimism over interest rates grew in April.

Only four per cent of those who responded to the bank’s survey were expecting interest rates to fall in the next year, with the vast majority anticipating a rise.

This, says Lloyds, should mean that most people will have taken the rise to 5.5 per cent in their stride.

“Pretty much everyone expected the base rate to rise last week,” revealed Trevor Williams, chief economist at Lloyds.

“For consumers, forewarned is forearmed and the impact is likely to be much less than if the rise came out of the blue.”

It means consumers should have planned ahead and will be able to keep up with repayments on loans, mortgages and credit cards.

Although there was also increased pessimism about increasing prices, the barometer also showed that people are optimistic about job security and opportunities.

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Rate rise will hurt homeowners

The fallout from yesterday’s (May 10th) interest rate rise is being felt today, with many organisations warning that the increase could leave homeowners in the red.

The Bank of England announced that the base rate would rise by 0.25 per cent, taking it to 5.5 per cent – the highest it has been since April 2001.

Experts are warning that those with a mortgage are likely to suffer the most, especially as more and more people are taking out loans that stretch them to the absolute limit.

As house prices continue to grow and buyers take out mortgages which leave them financially stretched, Citizens Advice is warning that this latest interest rate rise may tip some homeowners over the edge.

“Today’s interest rate rise will put added pressure on some homeowners. Our evidence shows it only takes a very small change in people’s circumstances to tip them from manageable credit commitments into serious debt,” said Peter Tutton from the organisation.

“Citizens Advice is seeing a rapidly growing number of people falling behind with mortgage payments and in some case threatened with repossession.

“Housing debt is one of our fastest growing problems and it increased by 20 per cent in the last year,” he added.

Borrowers are being advised to talk to their lender if they are struggling to make payments, while those considering taking out a mortgage should check thoroughly that they can afford it.

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New buyers will feel pinch

First time buyers will be adversely affected by recent interest rate rises, says the Royal Institution of Chartered Surveyors (Rics).

The organisation believes that people taking their first step onto the property ladder are likely to fall behind with mortgage repayments as a result of the rise.

Conversely, Rics points out that buy-to-let investors are less likely to suffer the same fate, with age being cited as one of the key factors.

Figures show that those with a buy-to-let mortgage are generally older and have more disposable income, making them more secure in the market.

Rics says that 0.96 per cent of all mortgages in the UK are in arrears, with only a tiny percentage of these being buy-to-let properties.

“Buy-to-let investors will be less at risk from repossessions in the coming months,” said David Stubbs from Rics.

“Older, wiser investors are likely to ride out periods of interest rate rises looking to the benefits of long term capital growth rather than short term rental income.

“January’s surprise interest rate rise is likely to soften new buyer enquiries in the coming months but those buyers who have already taken the housing market plunge could find mortgage companies knocking at their doors in the near future as affordability conditions bite.”

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