Increase in Interest Rates to cost Burgess Hill Home Owners £288.49 a year.

Burgess Hill homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.   

Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate.

The average Burgess Hill mortgage is £115,397.

I have to ask by how much Burgess Hill homeowners (on variable rate or tracker mortgages) will see their repayments increase?

In the RH15 postcode there are 5,495 homeowners with a mortgage, of which 2,361 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those RH15 homeowners with those variable rate mortgages is £272,411,907, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £899.78 per month and now its £923.82 per month, meaning the interest rate rise will cost Burgess Hill homeowners on average an extra £288.49 per year.

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17 per cent when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate actually do to the Burgess Hill housing market?

Well, if I’m being frank – not a great deal. The proportion of Burgess Hill homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.

If more Burgess Hill people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Burgess Hill people having to sell their Burgess Hill properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.

However, and this will be of interest to both Burgess Hill homeowners and Burgess Hill buy to let landlords; for every 1% increase in the Bank of England interest rate, it will cost the average Burgess Hill homeowner on a variable rate mortgage £96.16 per month.

So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Mid Sussex Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Burgess Hill property market will always remain strong for both Burgess Hill homeowners and Burgess Hill landlords alike.

Moving from a 2 bed Burgess Hill Property to a 4 bed will cost you £769 pm.

Moving to a bigger home is something Burgess Hill people with growing young families aspire to. Many people in two bedroom homes move to a three-bedroom home and some even make the jump to a four-bed home. Bigger homes, especially three bed Burgess Hill homes are much in demand and it can be a costly move.

If you live in Burgess Hill in a two-bedroom property and wish to move to a four-bedroom house in Burgess Hill, you would need to spend an additional £194,766 (or £769.33 pm in mortgage payments (based on the UK Bank average standard variable rate)). However, going straight to a four bed from a two-bed home is quite rare as most people jump from a two to three-bedroom home, then later in life, from a three to four-bedroom home.

So, after being asked my thoughts on moving home in Burgess Hill by a friend recently, please find my analysis of the local property market and then some thoughts. To start with, let us see what the average property price is for a Burgess Hill property by the number of bedrooms it has.

I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc. both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74% - so the mortgage cost could be higher or lower depending on the mortgage taken).

There are some interesting jumps in costs when moving upmarket as a Burgess Hill buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Burgess Hill is quite high (and hence why some four bed properties are taking slightly longer to sell nowadays). On an aside, a lesson here for all my landlord property blog readers, you can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy to let because the monthly finance costs and rents achieved don’t match up so well (i.e. A mortgage for a 4 bed home in Burgess Hill would cost you 33.88% compared to a 3 bed mortgage, but the jump in rent would be a lot less than that.)

So, coming back and looking at the stock of properties in Burgess Hill, this also makes interesting reading:

The most active purchasers are 20 something and 30 something home-owning parents with growing families. Many look to more modern developments for the perfect balance of access to decent primary schools, commutability and lifestyle. For landlords looking to buy within Burgess Hill, they face stiff competition from these 20/30 something families, making the three bedroom Burgess Hill home massively in demand, often attracting spirited offers and selling within weeks of listing. This mix of homebuyers and landlords is a pressure point in the Burgess Hill property market.

Yet, the cost of an additional bedroom can be too much for some Burgess Hill buyers. It is quite challenging moving home the first time, but to then find you are priced out on the next move up the ladder can be quite disconcerting, with families often having to move to a different part of town to get the bigger home they need.

Nevertheless, that’s the place many homeowners find themselves in with the cost of the additional bedroom being too much to bear. To those buying their home for the first time, all I suggest is they not only consider the mortgage payments and other costs of their first home, but also do their homework into their next rung up the Burgess Hill property ladder. Thinking about it now will keep you ahead of the game in the future; as your number of bedrooms, family property needs and lifestyle wants change.

And Burgess Hill landlords – well these changes in the way people live also mean there are opportunities to be had in the Burgess Hill rental market. Many Burgess Hill landlords are starting to pick my brain on this, so if you don’t want to miss out – drop me a line.