Interest rate cuts do not impress all

Following the most recent Monetary Policy Committee meeting earlier this month the Bank of England announced that it was cutting the base interest rate for the fifth time in a row, taking it to a new historic low of just 1 percent, which is the lowest in the history of the Bank of England. Read more

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Brits’ confusion over interest rates ‘worrying’

It is “worrying” how few people in the UK fully comprehend the impact of rising interest on their mortgage repayments, said CreditExpert.

According the credit report monitoring service’s Personal Credit Index survey, as many as 70 per cent of people asked, were not clear of the implications of the effect of interest on an example given to them and gave the wrong answer.

Respondents were asked to estimate the effect of a 0.5 per cent interest rise on monthly repayments for an interest-only mortgage of £100,000. Almost a fifth (19 per cent) guessed at £80 while 17 per cent estimated it at no more than £10. In fact, the correct answer was a £40 increase.

Furthermore, around eight in every ten mortgage holders were unaware of the meaning of annual percentage rate (APR).

Jim Hodgkins, managing director at CreditExpert.co.uk, said: “Although the current Personal Credit Index shows that people generally are more confident than in the last quarter, the lack of understanding of key terms and the effect of interest rate changes is worrying.

“It’s important for people to be familiar with standard financial terms and stay on top of changes that affect their personal finances so they can make the best possible decisions and choices.”

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Mortgage holders in for a ‘rate shock’

Mortgage provider Nationwide has warned homeowners coming off of two year fixed rate deals this autumn that they could be in for a nasty shock as their monthly repayments jump up by £200.

Two years ago, the average fixed rate for a homeowner loan was just 4.56 per cent, but 250,000 homeowners will be seeing their mortgage revert to standard variable rate, which now is an average of 7.65 per cent, more than three per cent what they are currently paying.

Although Nationwide is urging customers to negotiate a remortgage as soon as possible and preferably before their existing deal expires, the average fixed rate is also a lot higher today than it was in 2005. In fact, the increase from 4.56 per cent to 6.41 per cent will still cost customers £110 a month on a £100,000 loan.

“For some borrowers it will come as quite a fright to see their mortgage payments increase dramatically,” said Matthew Carter, director of mortgages at Nationwide. To absorb some of this shock, borrowers need to consider remortgaging as soon as their deal ends, or beforehand if their lender allows it.”

He also noted that there has been growing interest in the bank’s 25 year fixed rate mortgage since the last Bank of England base rate rise.

According to a recent survey by Abbey Mortgages however, less than one in four Britons would consider taking out a 25 year fixed rate homeowner loan.

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