Mortgage bills are set to rise by hundreds of pounds for millions of homeowners after the Bank of England (BoE) increased the interest rate, for the fifth consecutive time.
The increased interest rates from 1% to 1.25% could cost homeowners an additional £354 to their annual mortgage payments, warns online mortgage broker, Trussle.
The BoE began increasing interest rates in December 2021 and since then has raised the base rate of interest a further three times in January, March and May 2022. Collectively with today’s latest increase, homeowners across the country could see their mortgage bills increase annually by a significant £1,667.16.
Homeowners on Standard Variable Rates (SVRs) or tracker mortgages will be hit the hardest by the latest interest rate increase. These mortgages ‘track’ the BoE base rate, therefore monthly payments fluctuate with changing interest rates.
Previous research by Trussle estimated that some 800,000 households have expired mortgages and use SVRs so the number of households impacted by today’s rate increase should not be underestimated.
Additionally, the incremental increases in the base interest rate will affect homeowners looking to remortgage as lenders will likely reflect the rate change in mortgage products on the market.
The rise will also come as a shock to homeowners who took out short-term fixed-rate mortgages during the pandemic and are now nearing the end of their mortgage terms.
Amanda Aumonier, Head of Mortgage Operations at online mortgage broker Trussle, comments: “Households across the UK are facing extreme financial pressure having already taken the brunt of soaring inflation and an increase in the cost of living. This latest interest rate increase and the prediction that the base rate could rise to 2% by the end of 2022 will add a further strain to finances.
With this in mind, it is even more important for homeowners to research and understand their options. For those on SVRs or remortgaging, it is advisable to opt for a longer-term fix of 5, or even 10 years. Taking out a long-term fixed mortgage offers the security of a fixed interest rate and therefore, stable monthly payments. Long-term deals are very competitive at the moment. There is just 0.45% interest separating a 2-year fix from a 10-year fix.”
The impact on mortgages
Today’s decision will cause further turbulence in what has already been a drastically fluctuating mortgage market in recent months, with some lenders already jumping the gun and increasing their rates in anticipation of this increase. CEO of Octane Capital, Jonathan Samuels, commented: “Today’s confirmation will now open the floodgates in this respect, as the sector struggles to not only deal with a climbing base rate but also with the extreme volatility being seen in the swap rates market.”
Whilst an increase in interest rates is always likely to bring an undertone of panic to the UK housing market but the founding director of Revolution Brokers, Almas Uddin assured that there is no need to run for the hills just yet. He said: “There are still a range of lenders offering some very affordable products to suit a range of buyers and so it’s vital that you shop around when looking to secure a mortgage and consult a whole of market broker.”
“Financial position is key when securing these more favourable rates and so when looking to do so, ensure that your deposit is as robust as it can be and that you’re cutting back on unnecessary spending elsewhere.”
What can homeowners do?
The vast majority of homeowners in the UK are on a fixed-rate mortgage, so won’t see any change to their monthly repayments, for now. However, mortgage rates are going up, so when you do come to remortgage, it’s more likely that prices will be higher than where they are now.
Rosie Fish, Mortgage expert at Habito explained: “If you haven’t got a mortgage offer yet, but will be looking to get one in the coming months, make sure you get your documents in order. Things like your ID being up to date and your address being correct on your bank statements will help avoid delays when it’s time to submit your mortgage application.”
“Remortgaging with the same lender can save some time, and often doesn’t come with fees, but you can’t be sure you’re getting the best interest rate on the market. Switching to a new lender often means the most competitive rates and often their deals come with cashback or freebies - like free valuations. Either way, it’s worth speaking to a broker because often, they can get exclusive rates, even if you decide to stick with your current lender.”
