Sam Dunn: Beware of the interest rate doom-mongers
Reports of households in 'meltdown' are grossly misleading
Sunday 13 May 2007
You couldn't accuse the Bank of England of picking a good day to bury bad news. Its Monetary Policy Committee always announces its monthly decision about what to do with interest rates at 12pm on a Thursday.
But the timing of a quarter point rise in the base rate to 5.5 per cent last week slipped neatly into the shadow of Tony Blair's resignation announcement. For once, a decision to raise the cost of borrowing failed to make the biggest headlines.
Yet it will still stoke fears about overstretched personal finances. These are usually well-founded. A move on interest rates regularly translates into changes to our personal financial circumstances, most potently and immediately on variable-rate home loans such as base-rate trackers.
To a lesser degree, annual percentage rates (APRs) on credit cards and other credit deals will also be affected but these don't always move right away, as card companies strive to be competitive in a ferocious market.
However, plenty of people already struggling with debt burdens could be pushed into an uncomfortably tight corner by higher monthly repayments.
As a general rule, each £100,000 of home loan hovering around the 7 per cent mark on a variable interest rate will cost an extra £15 to £25 a month every time rates rise by a quarter point. After four such rate rises since August, many borrowers will be trying to find an extra £100 a month to cope - no easy task.
The continued rise in insolvency figures - up by nearly a quarter year-on-year in the first three months of 2007 - are testimony to this.
Concern about rising interest rates is always worth voicing, but the popular obsession with base rate decisions has reached an almost fetishistic level that is in danger of obscuring some truths.
It's noticeable that, whenever a rate rise is announced, countless media reports breathlessly warn of the monthly cost of an average mortgage going up by the sums outlined above - and how millions of household budgets are on course for "meltdown". But these heralds of doom can be grossly misleading.
Many millions of Britons now have fixed mortgages - nearly 60 per cent of borrowers overall, according to industry estimates - that set their monthly repayments for two, three, five or 10 years.
More people took out fixed-rate mortgages in January than ever before, according to figures from the Council of Mortgage Lenders. Some 85 per cent of first-time buyers chose to fix, while 70 per cent of movers also did so.
In no way is this surprising - after all, in an environment of base-rate rises, who wouldn't consider such a move?
But what is surprising, amid the gloomy headlines, is that so-called "specialists" regularly fail to acknowledge this point. Oft-repeated claims that households face higher mortgage bills are - for a great chunk of the homeowning nation - utter nonsense.
The problem is, every time the indignant howls start up - wrongly - about rate rises hitting the average mortgage, a pervading sense of doom can set in.
This benefits no one, given that consumer confidence is key to sustaining momentum on the high street and instilling an economic feel-good factor.
The prospect of homeowners currently at the end of a fix - a two- or three-year deal, say - having to pay more each month when they remortgage is, of course, a very real one.
But many of them may already have budgeted for the extra cost, or they may earn more now than they did when they took out the original loan. Even if this is not the case, they may be able to change the term of their mortgage to keep monthly repayments at an affordable level.
And as for hundreds of thousands of other borrowers who are at least six months away from a remortgage, they could find interest rates have dropped by then, especially if inflation is back on target.
This is neither to set out a belief in a fairy-tale ending nor to gainsay the harsh economic realities many people face. But a less sensational approach to the vicissitudes of the UK housing market might - over time - go a long way to avoiding a worst-case scenario.
Questions Of Cash: 'Your bank card may have been cloned'
Government's Pension Wise guidance service is up and running
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Mark Dampier: What price equities when cost cutting does nothing for profits?
Offset your mortgage and save thousands
- 1 Finland schools: Subjects scrapped and replaced with 'topics' as country reforms its education system
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 4 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
- 5 Zayn Malik quits One Direction: Hundreds of workers request compassionate leave following band member's exit
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash live: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station