News that Bank of Ireland is spontaneously hiking rates for thousands of borrowers will undoubtedly cause consternation – not to mention outrage – to those affected. Especially since their mortgage rates are pegged to the (unchanged) Bank of England Base Rate.
Whatever the rights and wrongs (ok, there probably aren’t many votes for “right” but you can be sure BoI wouldn’t have done this unless they felt they were on solid ground), from a wider perspective this is a stark reminder that we are still living in extraordinary times.
After four years of Base Rate sitting at 0.5% you’d be forgiven for thinking current interest rates are a new normal. And that’s just reinforced by speculation that incoming Governor Mark Carney will be keen to keep rates unchanged for a few years yet, and the Funding for Lending (aka Free Money) scheme bringing new mortgage rates down ever further.
But in the grand scheme of things, mortgage rates are preposterously low; with a capital PREPOST. They will go up eventually, and historically speaking rates of 5% and more are far from unusual. So the examples already hitting the press of payments jumping by many hundreds of pounds a month illustrate, ultimately, the fate of all mortgage holders when the time comes. Probably not all in one go like this (unless of course others decide to follow Bank of Ireland’s lead) so the shock factor may be reduced, but it’s still waiting to happen nonetheless.
Although it’s profoundly tempting to take advantage of the current low rates to *ahem* support the economy (personally I’m doing my best to keep several breweries afloat), there are two lessons to take from the Bank of Ireland situation: first, it could happen to you too; and second, given enough time it certainly will.
So while the affected Bank of Ireland borrowers may be feeling - in the words of one commentator - kicked in the teeth, everyone else should take it as a timely tap to the derriere: if you can pay extra off the mortgage, do it; as much as you can. Sooner or later you’ll be on the receiving end too, and the more padding you can build up beforehand, the better.