Thousands of struggling London home owners were dealt another huge blow on Thursday when the Bank of England increased its interest rate by half a percentage point to a 15 year high of 4 per cent.
The Bank’s Monetary Policy Committee (MPC) voted 7 to 2 to hike the cost of borrowing for the 10th successive time to bring rampaging inflation under control.
It will have an immediate impact on the mortgage bills of the estimated 200,000 homeowners in London who are on tracker or variable rates that move in line with the Bank of England.
For a borrower with a typical £250,000 London tracker mortgage it will increase monthly payments by £72 from £1,719 to £1,791. However, the majority who are on fixed rates will be shielded from the impact of the rise until their home loan deals have to be refinanced.
But the fixed rates on offer now are far higher than they were when current deals close to the end of their lives were two and five years ago meaning many borrowers face painful increases in costs when they come to remortgage.
The Bank began increasing the cost of borrowing from an emergency Covid era rate of 0.1 per cent in December 2021. Since then it has increased rates at every meeting of the MPC. However, this is likely to be the last half point rise and Governor Andrew Bailey hinted last month that rates were likely to peak at 4.5 per cent.
The move, which was in line with City forecasts, come the day after the US Federal Reserve increased its key rate by a quarter point to a range of 4.5 per cent to 4.75 per cent.
Chancellor Jeremy Hunt said: “Inflation is a stealth tax that is the biggest threat to living standards in a generation, so we support the Bank’s action today so we succeed in halving inflation this year.
“We will play our part by making sure government decisions are in lockstep with the Bank’s approach, including by resisting the urge right now to fund additional spending or tax cuts through borrowing, which will only add fuel to the inflation fire and prolong the pain for everyone.”
It is expected to accelerate the fall in property prices.
On Friday, the Nationwide building society said average prices dropped for the fifth month in succession in January.
Tara Flynn, personal finance expert at financial comparison site, Choosewisely.co.uk, said: “Families are facing numerous challenges, and an interest rate hike is the last thing they need. The Bank of England argues that increasing interest rates helps control inflation but appears indifferent to the impact this will have on millions of homeowners whose mortgages are due for renewal, credit card holders, and those seeking loans.
“It’s widely acknowledged that the cost of living crisis has led to a significant increase in credit card usage, as families have been compelled to use them to cover escalating expenses such as energy bills, fuel, and food. However, they are now being penalised for something they would prefer not to do; it’s absolutely heartbreaking”.
Nick Bowes, chief executive at the Centre for London thinktank said: “People who want to buy are finding getting a mortgage increasingly unaffordable. Renters are facing higher bills as landlords pass on higher payments on their mortgages.
“Efforts by the Bank to tackle inflation are important. But government must help people faced by increasing housing costs, so they can afford to live and work here – otherwise businesses and public services will suffer.”
