Millions of homeowners were hit by yet another bruising rise in mortgage bills on Thursday when the Bank of England increased its interest rate by half a percentage point.
The latest hike lift the Bank’s key benchmark rate from 1.75% to 2.25%, the highest it has been since December 2008.
The move marks the seventh meeting of the Bank’s Monetary Policy Committee on the trot to order an increase in the cost of borrowing as it battles to rein in rocketing inflation.
The rise will be felt immediately by the estimated two million mortgage holders with variable or tracker deals with rates that move in line with the Bank of England. The latest move will add £88 a month to the cost of a typical £300,000 London mortgage, lifting the monthly repayment to £1,842.
However, the three million more on fixed deals approaching the end of their terms now face huge increases in their bills when they have to remortgage. The main lenders have all been repricing their fixed deals in recent days in anticipation of the Bank’s move.
It comes the day after the US Federal Reserve, the world’s biggest central bank, raised its main rate by 0.75 per cent.
The mortgage increase is the latest in a series of cost of living blows to hit Britons. Inflation was running at 9.9 per cent in the year to August and is expected to peak in October when energy bills go up again. The energy price cap had been due to rise to an average of £3,549 for a typical household. But Liz Truss announced earlier this month that it will only go up to £2,500 to protect families from the worst ravages of soaring wholesale gas price.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “While a 50 basis points rate rise does not feel as aggressive as the 75 basis points that was mooted in some quarters, it still means a considerable increase in monthly payments for those on variable-rate mortgages. Coming on the back of six interest rate rises since December, plus higher energy bills, some households will really struggle.
“We don’t believe rates will or should go much beyond 3 per cent, despite fears that they could go higher. If the Bank of England were to hike interest rates to say 4 or 5 per cent, it risks causing greater problems than those it is attempting to control.
“Mortgage deals can be reserved up to six months before you need them so it may be worth securing a deal now which can be moved onto once your existing deal comes to an end. We are hearing from many borrowers on fixed rates who are considering paying the early redemption penalties in order to remortgage onto another deal but this may not be in your best interests, depending on the rate and length of time left to run. Speak to an independent mortgage broker who will be able to advise.”
