Break open your piggy bank and count the money. Run to your bank branch, call then, or log on to check your balance. Whip out a calculator, sit down your partner and figure out exactly how much money you are making together, what is your combined worth at the moment, and then dial your boss to clear up the question of all and any potential raises in the foreseeable future. Although is it unclear at the moment whether we are still awaiting the promised inflation, or if it is here already, one thing is certain: we finally feel it. Those of us who are fortunate enough to live in an alternative, unique reality, not connected to the rest of the United Kingdom by print, television, and phone and computer wires: Hear! Hear! Fixed mortgage rate is going up next week. Should your neighbors or grown-up (at least age-wise) children fit the above described category – be a good Samarian, ring them up, scare them.
This week some of UK’s leading banks announced a significant increase in the cost of borrowing, raising their fixed rate mortgages to an all-time record. It is hard to describe this move as ‘a sudden’ or ‘an astonishing’, wish as the news anchors may, the clichéd but classic “Today, in a surprise move…” headlines and evening news openers, do not apply. The raise is an unfortunate, yet logical development of last week’s base rate increase from 5.5% to 5.75%. Few lenders have already announced their raises of up to 0.4% in their fixed mortgage rates (Northern Rock and Abbey, for example). Experts say that other financial institutions are likely to follow (Halifax will most likely join that group.).
The raise is logical, and without a doubt most will consider it as such. That is not the case.
The problem, besides hundreds of thousands affected households, is thus: how do financial institutions justify the raise, considering that they themselves are not directly impacted by the base raise? Funds of Northern Rock, Abbey, Halifax, Direct Line, MBNA, Barclays, First Direct, Lloyds TSB and other major players come from international money markets; hence their own operational costs have not increased.
How do banks explain that phenomena? - Easily, and from the sound of it, with an expectation of customers’ compassion and understanding. Northern Rock spokesman John Watson explains: 'Swap rates
have been rising relentlessly over the past few months, and we have tried to hold our rates. But we have now looked at our position and we have had to catch up with the rest.'
One should be informed, however, what swap rates have not risen as dramatically as the base rate. Moreover, should fixed mortgage interest rates been increased to reflect the swap rate increase, or the base rate increase, they would have been raised by 0.07%, or by 0.2% correspondingly.
What does this mean to consumers? On an interest-only mortgage of £150,000, for example, mortgage rate increase of 0.4% would translate into an additional £50 a month, £600 a year, £6,000 a decade, and an additional £18,000 on a 30 year term mortgage.
Abbey increased its rates by 0.3%; Northern Rock will do so by 0.4%. Halifax will reveal new rates later this week. You still might have time. Grab your piggy bank, and run, run to the bank. Come Monday, it might be too late to take out a reasonably priced mortgage.
About Northern Rock
