There’s nothing like a TV program on interest rates to get the Mortgage Required Office riled and ITVs Tonight program last week was no exception. “How prepared are British homeowners for a rise in interest rates?” Was the title, which looked at the impact of increased interest rates on 4 very different families. Of course I feel sorry for savers who are getting virtually nothing on their deposit returns, but I was interested to see what the mortgage holders had to say.
It has been well documented that Mark Carney, Governor of the Bank of England expects interest rates to “rise gradually,” now that the economy is looking more robust, so how could ITV possibly fill ½ hour with high impact TV, based on “interest rates returning to normal after 5 years, via very gradual increases.”
The first time I shouted at the TV was when one of the “industry experts,” announced that “If the tracker rate doubles from 0.5% to 1%, then your repayments will double.” NO! WRONG!! If your particular interest rate doubles, then the interest part of your loan doubles, the capital element you are paying back stays the same.
For example: If you are paying £1100 on your mortgage each month, and £1000 is capital and £100 I interest, then the interest portion would double to £200, making your payments £1200. Not the £2200 as the “industry expert” indicated.
Next, some poor teacher whose salary hadn’t increased since way back when was concerned that any rate increase, however gradual, would cause serious impact on his finances. He had decided that with rates about to rise, now was the time to fix his mortgage rate (seems sensible to me). Cut to the “industry expert” who advised that “fixed rates are a good idea, but are more expensive than tracker / variable rates.” NO! WRONG! On the whole, they are about the same, some fixed rates are considerably lower than the variable rates existing borrowers are paying.
Another point which clearly didn’t get a mention, (and this is the one which always gets us going), is that variable rates and fixed rates are set by the mortgage lenders themselves and so bare little or no relation to the Bank of England Base Rate or its movements. Its only tracker rates which move in line with the BBR.
Everyone at the office is in agreement that should another “industry expert” be called upon for future comments on the Television, any of us could have done a better job, (and we are all free.. anytime).
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