View more on these topics

Charcol warns of interest payment rises of at least 1%

Charcol is warning borrowers to expect interest payments to increase by at least 1%.

With four interest rate rises this year, borrowers could see their interest payments rise by around 20 to 25%.

For a typical mortgage of 100,000, those on annual review could find their monthly interest payments rise by 83, equating to 1,000 over a year.

And this could be even more if they are unlucky enough to be with one of the many lenders who have increased their interest rates by more than Bank base rate.

Ray Boulger, senior technical manager at Charcol, says: “There are still many borrowers in the UK who have their mortgage structured on an annual review basis.

“This means any interest rate changes over the course of the year are amalgamated and applied to the mortgage at the start of each New Year.

“As payments will have been calculated on a lower interest rate at the start of 2004, borrowers on annual review will have a shortfall to make up next year.

“With base rate increasing by 1% during 2004 borrowers on annual review will see a significant increase in their monthly payment next year.”

Charcol estimates that many of these borrowers will be paying their lenders standard variable rate, which means there is a good chance for many to mitigate the rises they will suffer.

The difference between most lenders SVRs and current market-leading deals is around 2%, and so it would be easy for borrowers to not only avoid an increase in payments but to actually reduce what they are paying, despite their current payments being based on last years interest rates!

If someone with a 100,000 interest only home loan on a 6.75% SVR simply accepts the terms of their annual review they are likely to pay around 565 each month next year, compared with 479 this year.

This is an increase of 86 a month. If they remortgaged to a market-leading three year tracker at 4.75%, they could potentially see their monthly payments shrink, even with the annual review increase, by around 80, to 399.

Boulger says: “Even those who are fully prepared for the leap in their mortgage payments would be foolish to not look at whether they are getting the very best value from their loan.

“Borrowers who do not have early repayment charges should contact their lender and ask what better deals they can offer, and then compare these deals with others in the market.

“Apathy on the largest financial commitment many of us will ever have just does not make sense.”

Recommended

The soft underbelly of networks

The new year brings with it a regulated insurance market. But is the industry ready for the additional wave of compliance, competence, training and costs, asks Richard Griffiths

Cummings to juggle two industry roles

Chris Cummings is keeping his responsibilities as director of the Association of Mortgage Intermediaries alongside his new role as deputy director-general at the Association of IFAs.Cummings’ appointment was announced last Friday as AIFA revealed that David Severn will become director-general of the trade body from February 1, replacing Paul Smee who leaves at the end […]

enable join AMI

The Association of Mortgage Intermediaries has revealed that enable has become its latest network member.Richard Verdin, sales and marketing director at enable, says: “AMI has established itself as the trusted trade body for all professional mortgage intermediaries and it makes sense for us to give them our support and offer their membership benefits to appointed […]

Pension savings-2015

Overseas transfer charge

By Jim Grant, Senior Product Insight & Technical Support Analyst, Royal London Transfers to overseas pension schemes are not recognised transfers unless the transfer is to a Qualifying Recognised Overseas Pension Scheme (QROPS). A transfer to an overseas pension scheme that isn’t a QROPS is therefore an unauthorised payment and taxed accordingly. However, even if the […]

Newsletter

News and expert analysis straight to your inbox

Sign up