'Free to leave' homeowners are driven by rises in monthly payments not rates

Published ¤ 05/04/2011 11:08:57

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According to recent research carried out on behalf of first direct, mortgage holders who have come to the end of their current mortgage deal and are 'free to leave' appear more sensitive to a rise in their monthly payments than a rise in the Bank of England Base Rate.

When asked how likely various rate rises or payment increases would be to encourage them to look for a new mortgage deal 10% would definitely look if interest rates rose by 1%, but 4 times as many would do the same if they saw an increase of £100 in their monthly payments.
This worrying trend indicates that SVR mortgage holders are very likely to experience payment shock as rates do begin to rise. 41% of those on the lookout to move mortgage in the next 12 months would definitely look for a new deal if their monthly payments rose by £100 and of those not planning to be active in the next 12 months 35% made the same claim. Only when faced with an interest rate rise of 3% did a similar proportion of 'free to leave' mortgage holders state that they would definitely look for a new deal.
'Free to leave' homeowners appear keen to fix but are extremely rate sensitive and all plumped for a shorter term fix at a lower rate when asked to compare various options, highlighting a disparity between expectations of attractive long term fixed rates and those likely to be available on the market in the coming months.
The majority of inactive mortgage holders (those with no current plans to move or remortgage) are happy on their current SVR, enjoying the benefits of low monthly mortgage payments and have few incentives to leave. An increase in their monthly payments rather than a rise in interest rates is more likely to knock these consumers out of their inertia. If payments increased by up to £100 per month, over 37% of respondents would look for a new deal, but an interest rate rise of 2% would have the same impact on only 1 in 6. Half of those with no intention to be active said that they would switch lenders for a saving of £100 per month and a worrying 36% of inactive mortgage holders don't know what their current interest rate is!
Delaying could cost dearlyRichard Tolchard, Senior Mortgage Product Manager at first direct commented: "It's easy to see why homeowners enjoying the benefits of a low variable rate might be unwilling to volunteer for an increase in their monthly payments by moving to a fixed rate now. The upside is that those who move now could be laughing in the end. The "wait and see homeowner" looks set for a payment shock when base rate does move, with a 1% increase in variable rates driving a monthly payments rise of over £112 per month. The best fixed rates are likely to be long gone when this happens."
PKS is an independent mortgage broker in Odiham, and one of Hampshire top mortgage advisers. Paul Skinner, managing director, said: "The majority of people do not seem to be able to relate the risk of interest rates rising with a rise in mortgage costs. Many homeowners have become confortable with paying low interest rates, and are now complacent, to the point of missing out when rates eventually rise.
"There are thousands of mortgage deals on the market at the moment, and many of the fixed rates are at the lowest they have been for years. However, these fixed rates will have gone by the time interest rates start to rise. People need to get independent mortgage advice sooner rather than later."
See how much a small increase in interest rates will affect your mortgage payments with our Mortgage Calculator. Alternatively, have a look at the range of mortgage deals currently available - click here to compare the market.

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Registered address: 10 Addison Gardens, Odiham, Nr Basingstoke, Hants RG29 1AS
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