Interest Rates And Prime Time To Borrow

Present trends in housing loan markets in UK:

Consequent to the announcement by the Government body, National Housing and Planning Advice Unit in UK, that the house prices will be up by 10 times of their income, there is a spurt in going for borrowing mortgage loans for housing.

According to latest surveys, there are 3.7 million prospective borrowers, desirous of getting home loans nearly five times their salary. Out of this about 1.38 million are ready for borrowing six times also. Such a scramble was unheard of in the earlier years of U.K. housing loan circles and at best people were ready to borrow a maximum of 3 times of their income.

This trend is a result of the present average price of housing in UK to be nearly £200,000 and since the prices are more, people tend to borrow more by way of mortgage loans, irrespective of the consequences. High mortgage loans with longer terms of repayment have become the order of the day.

Interest rates on mortgage loans:

Bank of England announced new figures of interest rates last week – raising the interest rates by 0.25 per cent to 5.25 per cent. This is the highest level ever since May 2001. In effect this increase will cost additionally £17 to the average monthly repayment installments of mortgage loans. Notwithstanding this the number of first-time buyers is on the increase to climb up the ladder of home-buying, fearing escalation in the home prices.

What is the solution offered to home buyers?

Actually as on date first-time buyers of home in U.K. are borrowing at 3.29 times of their salary as per November figures, compared to 3.08 times prevalent same time last year, the average mortgage being £113,877. It is indicated that sub-prime mortgages tend to grow more than mainstream mortgages, if the 26 per cent increase in last November is any indication. The projection is by 2011, the figure will reach £35 billion by 4.70 per cent increase annually, whereas the mainstream will reach £395.1 billion through 2.6 pc annual increase.

Financial experts advise the borrowers to choose for discounted rates of interest rather than fixed rates. The true cost of fixed rates over 2 years repayment will be much more compared to that of variable rates for the same period. In the longer run, the borrowers will be ending up with more repayment than necessary. There are best variable rate products available in mortgage loans – up to 4.24 per cent as compared to fixed rates of 4.84 to 5.39 per cent available with the lenders.

So the first home buyers can very well think of the future, where they may have to forfeit their homes to repossession by default, if they are not prudent enough now.

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