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Since August 2006, borrowers in the UK have seen the Bank of England base rate rise four times - a financial move that many analysts believe has hit mortgage holders the hardest. However, the extent of the base rate rise became abundantly clear following a recent report published by the UK Council of Mortgage Lenders (CML), which states that mortgage interest payments for first-time buyers are now at their highest levels for 15 years. The regulated mortgage survey carried out by the CML shows that in April 2007, first-time buyers were paying 18.7 per cent of their income on mortgage interest, compared to 16.3 per cent in April last year. According to the CML, this year's levels are at their highest since 1992. And while the Bank of England's decision to maintain the base rate at 5.5% at the beginning of June will be music to the ears of some, it's likely that future CML surveys will see the proportion of income spent by borrowers on mortgage interest rise as May's interest rate rise begins to reflect in future data. For many first-time buyers, fixed-rate loans have been the most preferable form of mortgage as they ensure protection against interest rate rises and can help many borrowers plan their financial future with much more certainty. In April 2007, the CML estimated that 88 per cent of first-time buyers took out a fixed rate loan, with 72 per cent of home movers making the same choice. In the mortgage market overall, 78 per cent of UK mortgages are fixed-rate mortgages. But while this type of mortgage has its obvious benefits, it's likely that borrowers that took out a fixed-rate mortgage in 2004 or 2005, and who will be coming off their fixed-rate in the near future, will have to re-arrange their current finances considerably in order to absorb 2007's high interest rate. Michael Coogan, Director General of the CML, commented: "The vast majority of borrowers will be able to absorb higher mortgage payments. But with two million fixed-rate loans coming to an end over the next year and a half, many borrowers should anticipate that their mortgage costs are likely to rise and should be planning ahead." The CML's report comes soon after a Reuters survey revealed that over two million 18 to 34 year olds - many of whom are first-time buyers - are struggling to meet their mortgage repayments. Although published before the most recent interest rate review, which saw the base rate remain at 5.5 per cent, the research suggested that more than half a million consumers would be faced with financial trouble if interest rates were to rise once more.
Article Source: http://www.mycontentbuilder.com
Paul McIndoe is a recent university graduate whose hobbies include water-skiing and rock climbing.
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