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Interest hikes could reverse mortgage arrears Advance
The HML performed an assessment of the performances of some 100,000 mortgage portfolios, which have earned interest since August 2006 and traced the backlog performances until August 2007. From June 2006 to July 2007, the Bank of England's key interest rates rose in five different cases from 4.5% to 5.75%, reflecting the number and size of interest hikes in the HML series.
The HML, which was monitored between August 2006 and August 2007, rose the proportion of mortgage loans three to more months in arrears by 19% for cases where interest rates rose. 6 percent and the avarage backlog net for backlogs rose by 21 percent (backlogs ratio in percent of net by 0.62 percent in absolute figures).
Contextually, the current rate of late payments over three month in the UK is 1.85% according to the CML. Applying the tax rates equally to the whole populace would raise the British value to 2.12%. That' s 30,000 additional bank balances switching in three month plus backlog status within 12 month, HML said.
Furthermore, with the current median mortgage portfolio outstanding standing at 113,000 according to the CML, the remainder of the 0.62% rises in outstanding debt would see an median growth in delinquencies in the area of 700, a figure likely to be consistent with the extra month's mortgage payments demanded following interest rates hikes.
"We have identified the immediate link between the rise in a customer's ability to pay each month and the probability of falling into or further raising backlogs. "As we have seen, the mean rise in backlogs largely coincides with the rise in payments due to mortgage interest rates hikes, suggesting that clients who are already at the limit of affordable rates will continue to be marginalised.
"Since the Bank of England has indicated that interest rates could rise in the not too far away distant future, our signal is that this should be done with some prudence. It takes creditors a long timeframe to fully appreciate the effect of interest rates hikes on their clients' ability to afford and to help those facing further reductions in their available incomes.
"As the Bank of England has said, key interest rates will not go up until such time as inflation falls to 7%. On the basis of the latest data, which show that joblessness is now at 7.7% and the market is calculating a basic interest hike sooner than anticipated, it is wise to ask what would happened to the mortgage backlogs if the interest rates went up next year.
"The HML prognosis also does not take into consideration the increase in purchaser inquiry - and possibly even higher home prices - due to Help To Buy II. This, too, could compel the bank to act sooner than expected, and budgets should now begin to plan possible redemption payments on a quarterly basis.