Modest rises expected for mortgage rates

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According to Richard Dyson, writing in the Daily Telegraph in October 2016, mortgage rates are set to rise but he expects the changes to be affordable for most mortgage payers.

The exchange rate for the pound and British government bonds have fallen. These affect the swap rate, which is the cost to the banks of securing the capital that is lent to borrowers as a residential or commercial mortgage.

The swap rate has changed, making securing capital more expensive. Mortgage lending is a competitive market, and by keeping their margins low, many lenders have not increased their rates. This situation could change, though.

Many people are on fixed-rate mortgages, and will probably have to pay more when the fixed term ends. They can then take out another more expensive fixed-rate mortgage, or switch to a variable rate.

A rise in interest rates could affect young first-time buyers who currently, on average, pay 18% of their income of mortgage repayments. In 2007, the average was 25%, so mortgages would have to rise steeply to match 2007 levels.

People who cannot afford mortgage repayment increases could extend the length of their mortgage so that their repayments stay at the same levels when interest rates rise. Many first-time buyers are obtaining mortgages of 30 to 40 years to keep their monthly repayments lower.

Dyson says that extending the mortgage length is not necessarily a good idea. He also cautions people not to be too doom-laden about impending rate rises.

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