Sunday, 17 June 2007

Here comes to cure

Oh Lordy; we are in for a shock. All those sweet mortgage deals from two years ago are about to turn sour. Suddenly, those expensive houses bought during the bubble are about to get a lot more expensive.

What? Six percent interest rates are on the way? This will hurt. It will cut deep. But the UK housing market is bloated and sick. It will be bitter medicine, but higher interest rates are the only known cure to chronic speculitis.

It is just what doctor ordered and the patient needs.

Sunday Times

HUNDREDS of thousands of homeowners face a £1.3 billion mortgage shock in the next few months as they come off rock-bottom fixed rates taken out in 2005.

More than 800,000 borrowers, who have so far been insulated from the one percentage point rise in interest rates since August, will see their annual mortgage bills leap by an average of £1,500 when they remortgage, according to research by Deutsche Bank.

George Buckley, the investment bank’s chief UK economist, said: “Homebuyers are in for a shock when their deals come to an end. Two years ago fixed mortgage rates offered outstanding value and the number taken out ballooned. Fixes are now around 1.1 percentage points higher than they were then, and are likely to rise further still.”

He said the repayment blow could lead to a sharp slowdown in the housing market next year, and possibly cause single-digit falls in house prices. “The sharp rise in mortgage payments faced by borrowers will almost certainly put downward pressure on house price inflation and could also slow consumer spending as households struggle to absorb the extra costs,” he said.

Some commentators are even predicting the demise of sub-6% fixed rates, which is bad news for people who managed to fix at less than 5% just two years ago. In summer 2005, the average two-year fix was just 4.67%; it is now 5.72% and will probably hit 6% over the next few months if, as expected, the Bank of England raises rates further.

1 comment:

doctor kildare said...

speculitis?? What is that??