Interest rates have risen to 3 percent after the Bank of England announced its decision today (November 3). The base rate has now jumped up from 2.25 percent by 0.75 percent which is the biggest interest rate rise since since 1989.
The decision came after nine members of the Monetary Policy Committee voted by a majority of 7-2 to increase to help tackle inflation amid the cost of living crisis. This is the eighth consecutive time that the Bank has raised interest rates, with the base rate just 0.1% less than a year.
With mortgages decided against this rate, millions of homeowners could now see their monthly mortgage repayments rise once again, which last happened in September after the mini-budget was delivered by former Chancellor, Kwasi Kwarteng.
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People with a mortgage which directly tracks the Bank of England base rate could now see their monthly payments rise by another £73 on average as a result of Thursday’s rate hike.
It is the latest in a string of base rate increases, meaning that, since December last year, the average monthly tracker mortgage payment will have increased by £284.17 in total, according to figures from trade association UK Finance.
This adds up to an increase of around £3,410 per year typically that tracker mortgage holders need to find in their budgets. The base rate increase from 2.25% to 3% on Thursday will mean a £73.49 monthly increase – or around an extra £880 per year – for the average tracker mortgage holder.
Just under one in 10 (9%) outstanding residential mortgages are trackers and around four in five (78%) are fixed-rate deals. The average standard variable rate (SVR) mortgage meanwhile will increase by £46.22 per month, according to UK Finance’s figures, if a borrower’s lender passes on the base rate increase in full.
SVRs are set individually by lenders and borrowers often end up sitting on them when their initial deal comes to an end. The average monthly SVR cost for a borrower has increased by £178.70 in total since December, assuming that base rate increases are being passed on in full.
Base rate rises are not the only factor used by lenders to price their mortgages. Market volatility following the mini-budget prompted a surge in the mortgage rates being offered by lenders, with many products being pulled from sale.
A recent Office for National Statistics (ONS) survey found that 48% of mortgage holders reported being worried about changes in interest rates on their mortgage.
You can calculate how much your monthly mortgage payments could go up by with the new interest rate below...
Brian Murphy, head of lending at the Mortgage Advice Bureau said: “Expectations are that the industry will see an upwards trend of defaults on mortgage payments in the coming months, and so we urge anyone fearing that they may struggle with mortgage payments to go straight to their mortgage provider for guidance.”
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