Thousands of London homeowners were hit with higher mortgage bills today after the Bank of England doubled its benchmark interest rate to 0.5 per cent.
The widely expected hike means that London mortgage holders with a typical £300,000 home loan will have to pay around £40 a month more if they are on variable or tracker deals.
It was the first back to back increase in the cost of borrowing since 2004 following the hike from 0.1 per cent to 0.25 per cent at the Bank’s last Monetary Policy Committee (MPC) meeting in December.
Four members of the MPC voted for a larger 0.5 per cent rise to 0.75 per cent suggesting that further increases are almost certain over the coming months.
If rates go up by a full percentage point this year — as City economists expect — it will add £168 to the monthly repayment bill on a £300,000 tracker mortgage.
The vast majority of borrowers will be cushioned from the impact of the latest increase in the short term as they are on fixed deals.
But for the estimated 200,000 of London home owners with deals that move in line with the Bank of England rates today’s MPC announcement will mean a squeeze on household budgets.
For a borrower on a 25 year mortgage with a £250,000 loan the monthly repayment will go up by £34 from £1,284 to £1,318. On a £300,000 mortgage the increase is £41 from £1,541 to £1,582, while for larger £500,000 loans the monthly bills rises £68 from £2,568 to £2,636.
Borrowers on fixed rates will only be exposed to the rising cost of borrowing when they have to remortgage, although many on five year deals may actually be to reduce their borrowing costs as market rates are still lower than they were in 2017.
The best rates for a five year fixed deal for borrowers with a deposit of at least 40 per cent are currently around 1.4 per cent.
The Bank is making money more expensive to borrow to rein in soaring inflation, which is currently “running hot” at a 3-year high of 5.4 per cent, more than twice the official target of two per cent.
The City expects rates to continue to rise further through 2022 after almost 13 years at record lows to peak at around 1.25 per cent early next year.
Ray Boulger, senior technical manager at mortgage brokers John Charcol, said some borrowers might consider a 10-year fix with the cheapest deal on the market from Halifax at 1.68 per cent, less than 0.3 per cent more expensive five year deals, if they want long term peace of mind.
Savings rates will also go up although banks tend to delay passing on any increase to savers.
Heather Owen, financial planning expert at City wealth managers Quilter said: “While the Bank of England’s interest rates may still be low in comparison to those levels seen in years gone by, any increase will still have an impact. When coupled with the growing cost of living, and the now confirmed National Insurance increase looming in April, the pressures will be keenly felt by many.
“While the property market was seemingly undeterred by the previous rate hike, with prices growing ever higher, a further increase and more expensive mortgages could have the potential to slow the seemingly never-ending increase in house prices and should therefore be welcomed by those waiting on the sidelines ready to buy a home, at the right price.”
Cory Askew, head of sales at agents Chestertons, said: “We don’t expect the increase of 0.25 per cent to have any major impact on current buyer behaviour; particularly as mortgage lenders would have already begun incorporating the base rate change into future calculations.
“The property market, particularly in London, continues to register record levels of house hunters, keen to find a new property to call home. Compared to January last year, our branches have witnessed an incredible 63 per cent increase in buyer enquiries.”
Henry Knight, managing director of mortgage brokers Springtide Capital said: “With the Bank of England having increased the interest rate twice within a short period of time already, it remains to be seen if another raise is likely to happen later this year.
“Some economists predict interest rate to reach up to 1.25 per cent by next year, which, compared to the current rate of 0.5 per cent would have a much more significant effect on buyers. Until then, with the majority of homeowners being on fixed long-term mortgage rates, we don’t expect the latest increase to cause any major impact on the market.”
