Expat mortgage broker predicts banks will not pass on full Base Rate rise to mortgage holders.

The increase in UK Base Rate from 0.50% to 0.75% at the start of August will have unnerved some expat mortgage holders and those considering an expat buy to let mortgage in the UK, but it need not, thinks Offshoreonline.org.

Offshoreonline thinks two factors are at play, namely concern over the total level of debt in the UK and the fact that many banks have been making above average margins on mortgages since the financial crisis of 2009, as they have had to rebuild balance sheets. That approach can now start to unwind, as banks such as Lloyds and Nat West finally return to a more normal and healthy status.

Figures published by The Money Charity earlier this year show average UK mortgage debt at its highest level on record at £123,292, to which can be added additional average unsecured debts of £8,000 arising from things like credit card borrowing and personal loans, according to figures in The Guardian. On top of this, data published by comparison site Finder.com in July 2018 shows 1200 buy to let mortgages are in significant arrears, defined as 10% or more of the outstanding balance. This figure is up 20% on the same quarter last year, suggesting a picture of a country maxed out on debt after a period of record low UK interest rates.

Offshoreonline spokesman Guy Stephenson thinks “Both the UK Government and the Bank of England will be well aware of these figures. They need to balance fears of runway inflation against a need to not tip more borrowers into serious arrears through higher borrowing rates, something which might trigger a rise in repossessions. As a result, we believe it is likely pressure will now be put on banks to limit mortgage rate rises wherever possible.”

Many commentators feel UK Base Rate must rise to something closer to 2% over time, but Stephenson believes not all of this needs to be passed on to hard pressed borrowers. Banks can now start to reduce their margins on mortgages from 4.99% over UK Base in some cases, to levels closer to those charged before 2009, when bank margins of 1%-2% were not uncommon.

“We have seen one banks lift its fixed rates by less than the 0.25% rise, another leave rates unchanged and we expect a third lender to only pass on a proportion of the total increase in lending costs,” added Stephenson.

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