Increase in Interest Rates to cost Rugby Home Owners £243.73 a year

Rugby homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.

Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate..

The average Rugby mortgage is £97,492

I have to ask by how much Rugby homeowners (on variable rate or tracker mortgages) will see their repayments increase?

In the CV21 – CV23 postcodes there are 14,077 homeowners with a mortgage, of which 6,047 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those CV21 – CV23 homeowners with those variable rate mortgages is £589,580,947, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £760.17 per month and now its £780.48 per month … meaning

The interest rate rise will cost Rugby
homeowners on average an extra £243.73 per year

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17 per cent when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.
So, what will this interest rate actually do to the Rugby housing market?
Well, if I’m being frank – not a great deal. The proportion of Rugby homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.
If more Rugby people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Rugby people having to sell their Rugby properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.
However, and this will be of interest to both Rugby homeowners and Rugby buy to let landlords …

.. for every 1% increase in the Bank of England interest rate, it will cost the average Rugby homeowner on a variable rate mortgage £81.24 per month

So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Rugby Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Rugby property market will always remain strong for both Rugby homeowners and Rugby landlords alike.

Rugby Homeowners Are Only Moving Every 15 Years (Part 2)

In the credit crunch of 2008/9 the rate of home moving plunged to its lowest level ever. In 2009 the rate at which a typical house would change hands slumped to only once every 22 years. The biggest reason being that confidence was low and many homeowners didn’t want to sell their home as Rugby property prices plunged after the onset of the financial crisis in 2008. However, since 2009, the rate of home moving has increased (see the table and graph below), meaning today:

The average period of time between home moves in

Rugby is now 15 years.

This is an increase of 47.05 per cent between the credit crunch fallout year of 2009 and today, but still it is a 19.01 per cent drop in moves by homeowners, compared to 15 years ago (The Noughties).

So why aren’t Rugby homeowners moving as much as they did in the Noughties?

The causes of the current state of play are numerous. In last weeks article I talked about how ‘real’ incomes and savings had been dropping. Another issue is the long-term failure in the number of properties being built. Only a few weeks ago in the blog, I was discussing the draconian planning rules meaning house builders struggle to locate building land to actually build on.

Back in the 1960’s and 1970’s, as a country, we were building on average 300,000 and 350,000 households a year. The Barker Review a few years ago said that for the UK to stand still and keep up with housing demand (through immigration, people living longer, a just under 50% increase in the number of households with a single person since the 1980’s and family makeup (i.e. divorce makes one household now two)) we needed to build 240,000 households a year. Over the last few years, we have only been building between 135,000 and 150,000 households a year.

Finally, as the UK Population gets older, there is no getting away from the fact that a maturing population is a less mobile one.

So, what does this mean for Rugby homeowners and landlords?

 Well, if Rugby people are less inclined to move or find it hard to sell a property or acquire a new one, they are probably less likely to move to an improved job or a more prosperous part of the UK.

Many of the older generation in Rugby are stuck in property that is simply too big for their needs. The fact is that, in Rugby, more than five out of every ten (or 52.3 per cent) owned houses has two or more spare bedrooms; or to be more exact …

15,413 of the 29,489 owned households in the Rugby

area have two or more spare bedrooms.

So, as their children and grandchildren struggle to move up the housing ladder, with those young families bursting at the seams in homes too small for themi.e. overcrowding, we have a severe case of under-occupation with the older generation – grandparents staying put in their bigger homes, with a profusion of spare bedrooms.

Regrettably, I cannot see how the rate of properties being sold will rise any time soon. Many commentators have suggested the Government should give tax breaks to allow the older generation to downsize, yet in a recent White Paper on housing published just weeks before the General Election, there was no reference of any thoughtful and detailed policies to inspire or support them to do so.

This means that there could be an opportunity for Rugby buy to let landlords to secure larger properties to rent out, as the demand for them will surely grow over the coming years. As for homeowners; well those in the lower and middle Rugby market will find it a balanced sellers/buyers market, but will find it slightly more a buyers market in the upper price bands.

Interesting times ahead!