Brexit, a hefty COVID bill, inflation, and the rising cost of energy, are just a few of the factors causing the price of everything to go up. So it is understandable that there’s a marked level of fear among homeowners at a rise to interest rates. Is it justified? In my opinion, no.
Firstly, interest rates have been at historic lows for the past decade so many newer homeowners won’t have any experience of higher rates. Homeowners who saw interest rates of almost 15% at the end of the 1980s are likely to be less concerned by the rise of 3.5% predicted in the coming years.
Secondly, their rock-bottom lows always meant that the only direction for them to travel was up, and this would have happened regardless of global factors. Lastly, and most importantly, lenders stress test interest rate factors in great detail before approving mortgages – eager to avoid the housing crash that befell many back in 2008.
To reiterate, the fear around a rise to mortgages is understandable, as it will sit alongside a rise to the cost of food, fuel, travel, and just about anything else. Subsequently, we will see a period of adjustment where homeowners will need to look carefully at their spending and factor in how much a rise in their mortgage will affect them. Of course, it is important to note that these worries are also dependent on what type of mortgage you have.
Variable vs fixed-rate mortgages
If you have a expat fixed-rate mortgage, there’s even less reason to be concerned right now as the rise in interest rates won’t affect how much you’ll repay. This will only become a factor when you re-mortgage or look for a new one as it may affect how much you can borrow.
There’s understandably more concern for those on variable rate mortgages who will see a rise in line with interest rates, however, these scenarios will have been stress tested by brokers who would lend based on how an interest rate rise will affect someone’s ability to repay.
Let’s not forget that those on a variable rate have enjoyed low-interest levels for some time and will know the pros and cons of their choice, particularly as a big benefit is there being no early redemption fees if you want to get out of your mortgage early.