Have mortgage holders really “never had it so good”?

Lord Young’s assertion that Britons have “never had it so good” as during this “so-called” recession, has landed in him hot water today – costing him his position as enterprise adviser to David Cameron.

Speaking to a journalist from the Daily Telegraph, Lord Young said, “"For the vast majority of people in the country today, they have never had it so good ever since this recession – this so-called recession – started, because anybody, most people with a mortgage who were paying a lot of money each month, suddenly started paying very little each month. That could make three, four, five, six hundred pounds a month difference, free of tax. That is why the retail sales have kept very good all the way through."

Although his comments clearly underestimate the impact that this recession has had on many families, he is right in pointing out that thousands of borrowers will have seen their finances benefit from dramatic cuts in their monthly mortgage payments.

Of course, this was precisely the outcome that was intended when the Bank of England cut the cost of borrowing from 5% to 0.5% between October 2008 and March 2009 – a move designed to counteract things such as a shrinking economy, rising unemployment and reduced spending.

Since then, we’ve had 20 months of interest rates at just 0.5% and during that time, anyone with a variable rate mortgage will have been enjoying considerably cheaper monthly repayments.

Someone with a £200,000 interest only mortgage paying a rate equal to the Bank of England Rate would have seen their monthly payments fall from £833 to just £83.  That‘s a saving of £750 a month or a staggering £9,000 a year.

Many borrowers will have also taken further advantage of these lower payments by using some of the saving to make overpayments on their mortgage – a move that will save them more interest in the future and could help them to cut years off their mortgage term.

However, Lord Young failed to acknowledge the large proportion of borrowers who’ve been on fixed rate mortgages during the recession and who’ve seen no change in their mortgage rate or monthly payments.

There are also thousands of people whose credit history prevents them from getting a mortgage deal from a high-street lender – these borrowers have seen their ability to secure a mortgage (and their choice of deals) severely limited due to the credit crunch.  And let’s not forget First time buyers, who to get on the housing ladder now, need to find much larger deposits than were required before the recession and the credit crunch.

The thing to consider now is how borrowers will react when interest rates start to rise from their current all-time low – many will be deliberating over when they should fix their mortgage rate to protect themselves against rising payments.

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