Can your client stomach an extra £300 each month?

Even though the Bank of England has maintained interest rates once again, there is little doubt that over the next few years interest rates will gradually rise.

Bridging and development finance specialist, KIS Bridging Loans, provides a helpful guide on what brokers and their clients can expect from rising interest rates. With borrower affordability being ever important, this hypothetical guide helps to put the impact of rising interest rates into perspective.

 For those with a mortgage with an interest rate linked to bank base rate, the chart below gives you an indication of the amount of the monthly increase that will have to be paid over and above what is being paid today.

KIS Bridging Loans’ chart indicates that per £100,000 borrowed today, by 2017 with a projected four per cent base rate, clients can expect a monthly increase of £292 to be paid.

The Bank of England has indicated that we should expect that a future “normal” level of Bank Rate will be 3.5 to four per cent. But we all know from experience that we do not always have “normal” and rates could rise much higher!

 

Interest rate chart

 

Year End	Anticipated	Monthly increase	Monthly increase
	B of E Base Rate	Per £100,000 borrowed	Per £1,000 borrowed
2014	0.75	£21	£0.21
2015	1.25	£63	£0.63
2016	2.00	£125	£1.25
2017	3.00	£208	£2.08
2018	4.00	£292	£2.92

 

 Want to work out the numbers yourself?

To calculate the monthly increase in your mortgage: Multiply your loan amount by the corresponding increase figure in the end column.

For example if you have a £160,000 mortgage and you want to calculate the effect of a 2% increase, 160 x 1.25 = £200 per month.