In recent columns I have used the word ‘panic’ to describe the possible rush to secure a good mortgage deal before they vanish when rates rise, and also made comment on how lenders may be feeling in terms of possibly missing their annual lending targets. The latter should lead to some good deals which I feel sure will hit the market in the last few months of this year.
However, there is another important term I think worthy of mentioning now and this is ‘Payment Shock’. A well worn term during the mid to late 90’s and one which I think Mr Jannels ‘senior’ may have played a part in coining! It describes the potential increase in monthly mortgage payments when an incentive period, for example a fixed rate, comes to an end and the mortgage moves to the lenders standard variable rate. It is worth reflecting that a one percent uplift on a mortgage of £200,000 may mean a monthly increase of up to £166.66 and, in many cases the rate may well increase substantially more than this. Imagine the impact of a two or three percent rise! Not unusual if the lenders standard variable rate is in the late four percent range.
We try to keep a listening ear open to those in our sector who are considered ‘gurus’ and their predictions on interest rate rises and when they will happen. In truth, no one can be certain, other than that they will rise. It is important therefore for mortgage borrowers to consider the potential of any rate increase (payment shock) and how it will affect them. A good time perhaps to consider a new fixed rate?
Finally, a commentator once wrote about consumers carefully researching prices for a new dishwasher or fridge and then shouting from the rooftops when they have saved £20 from shopping around. And, why not? Yet the financial press and advisers alike will regularly lament on the fact that borrowers will allow their monthly mortgage payments to continue regardless when they could be saving multiples of £20 every month!