Martin Lewis has revealed roughly how much you can expect your mortgage to increase by if interest rates continue to rise, as the Mirror reports. Following Chancellor Kwasi Kwarteng’s controversial mini-budget last week, there have been concerns that interest rates could rise to 6% next year.
This would be to combat rising inflation after the pound plunged to an all-time low against the US dollar. Earlier this month, the Bank of England raised interest rates to 2.25% - the highest level for 14 years and the seventh hike in a row.
With further interest rate rises anticipated in an attempt to keep prices low, those households with a mortgage will be particularly affected (just under a third of households have a mortgage, according to the government's English Housing Survey). If you have a tracker mortgage, you will end up paying more as your monthly payments will move in line with the base rate.
Most standard variable rate (SVR) deals will also become more costly, although it is down to your lender to decide whether they put rates up. People on fixed-rate mortgages will be protected from any rises until their current deal comes to an end.
However, due to how much rates are rising, homeowners will face paying thousands of pounds more when the time comes to remortgage. Martin Lewis wrote in the latest MoneySavingExpert newsletter to delve into how the rate hikes could impact monthly mortgage repayments.
The MSE founder said: “For each one percentage point your mortgage rate increases, expect to pay roughly £50 more a month (£600/year) per £100,000 of mortgage debt.” He added that rising rates “will likely push millions renewing when their fixes end into 'can't pay my mortgage' territory”.
If you are on a tracker or SVR mortgage, and you know your new mortgage rate following the base rate increase, you should search around to see if money can be saved by switching to another deal. For people on fixed-rate deals that are approaching their end should also be actively looking for a new deal.
Martin urged: "If your fix ends before March 2023, check deals now, as rates are likely to rise further, and today's rates may soon disappear." If you are on a fixed-rate deal that won’t end soon, then you will have to factor in any early exit penalty fees to work out if you’ll be better off overall.
Many lenders allow you to lock in a rate three months in advance, with a select few letting you lock in six months ahead.
