According to the Office for National Statistics (ONS), an average UK home is now £285,201, compared to £178,499 here in Northern Ireland. One professional in his mid-30s who spoke to the Belfast Telegraph said he and his family had moved over from a small basement flat in London to a similarly-priced three-bedroom, three-storey house in north Down. But the era of high interest rates means Northern Ireland mortgage costs just aren’t as low as they used to be.
The last few years have been a big change for all those who entered the workforce in the era of low interest rates, like our mid-30s professionals. Between February 2009 and May 2022, the Bank of England’s interest rate was set below 1%. The post-pandemic period, however, saw big price increases, with inflation being driven by global supply chain problems, and the shocks felt after Russia’s invasion of Ukraine.
The Bank took the decision to raise interest rates in order to try and lower overall spending, and therefore reduce the rate of inflation. The interest rate is now 5.25%.
There’s evidence that the Bank’s monetary policy may be working, as some measures of inflation show it around 2%, the target that had been set by both the UK government and the Bank of England. But despite the fall in inflation, the Bank opted against lowering interest rates at their last opportunity to do so in June. Governor, Andrew Bailey said policymakers “need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.
25% for now”. There was an expectation that the rate would be cut when the Bank’s nine-person Monetary Policy Committee next met together at the start of August. But now that’s looking much less likely, partly because a glut of spending on hotels and other leisure costs took place in June when superstar Taylor Swift played in the UK in June.
That had the effect of inflation staying at 2% — leaving the Bank much less likely to cut the interest rate at its August meeting. For mortgage holders, this all means that people are unlikely to see cuts to their rates in the next month, but the outlook remains uncertain for the year ahead, particularly for those on fixed deals. After the last interest rate announcement from the Bank of England in June, Ross Boyd, founder of Belfast accountancy firm RBCA said that the “real impact of high interest isn’t about the price of a pint of milk — it’s about the tick, tick, ticking mortgage time bomb.
” The North Down homeowner wouldn’t call it a time bomb, but he has been faced with what he calls an “annoying dilemma.” His fixed-term mortgage rate is due to expire soon, and he needs to decide when to renew with the aim of getting the best possible rate. “Mortgages are an interesting product, you consider that you own the asset, but really you’ve got a significant loan across it from the bank.
” “Most other products that you buy, such as a car, you fix the interest rate. “British mortgages are a funny one where you fix it for a fairly short period. “Essentially, you’ve got a product but you’re now having to pay more money for, but you’re not getting anything more for your money.
“That’s all a roundabout way of saying it’s annoying. In my generation, all we’ve ever known is mortgage payments going down, this is the first time it’s going up. “Especially in my generation, we’ve only ever been used to low interest rates.
I’ve been used to rates going down and my mortgage payments going down.” Francis Grimley, mortgage and protection advisor with the Mortgage Shop said that events have caused uncertainty in the mortgage market recently. “Nobody wants to pay higher rates than they have to, and there was a big knock-on effect from the Liz Truss budget.
“I would normally be contacting people six months before their deal ends to check options. Historically, people would be trying to lock in a rate as early as possible. “At the start of this year, it was the opposite, because throughout this year we thought there’d be slow rate reductions.
“There was a spike over the last two or three months there, so the clients we did lock in appreciated that. Clients who we didn’t lock in, their rates were higher. “At my end, we would always contact a client as early as possible, lock in a rate with the intention of contacting again four weeks before the product ends.
“And if rates reduced, they’d get the lower rate at that stage. “A lot is going around the base rate, and that obviously has a major impact, but the main impact on rates is the swap rates between the lenders.” When it comes to advice for people on fixed deals, Mr Grimley reminds people that “most lenders will allow you to review it six months in advance, and to cancel a product”.
“So my advice would be first, to speak to a broker to make sure they’re offering the most competitive option, and they may be able to re-mortgage to a different lender. “When you re-mortgage to a different lender there’s no cost because the other lender pays the valuation and legal fees. “If you’re staying with your existing lender, the best option is to lock in the deal as early as possible and then review it four weeks before the deal is up.
” Paul Mac Flynn, economist with the Nerin Institute said: “I think we all thought that by this stage we’d be looking at a very clear downward trend for interest rates and people would be able to plan with a little bit of certainty. “I think there is some good news in that the UK gilt rate has dropped which should ease up pressure on fixed rates. However, I think it does look quite unlikely that we will see a Bank rate cut this summer.
” For people looking to switch their deal, it’s probably looking better than this time last year, but not much. “I think as well the fact that the European Central Bank, which was the first central bank to start cutting rates again, has paused this week means that even if the Bank of England were to start cutting rates, it likely that this will be a much more gradual process than was first expected. “Inflation is back to 2%, but there is less evidence that it will stay there.
Services inflation remains stubborn and it’s fair to say that the geopolitical outlook is looking somewhat shaky at the moment. “Long story short, mortgage rates aren’t where we thought they’d be, but this is going to be a much longer process than we thought as first, so people having to make their switch now are unlikely to be losing out significantly to those doing so in a couple of months time.”.
