Chancellor Jeremy Hunt has acknowledged the difficulties facing homeowners after the Bank of England put up its base rate from 2.25% to 3%, the highest for 14 years, and warned of a prolonged recession. He warned families will face “very tough” times as mortgage costs soar, but insisted he was clearing up the economic mess left by the Liz Truss mini-Budget fiasco.
Fixed-rate mortgage holders are cushioned from the immediate impact of the base rate rise, but there are concerns that people will have to re-mortgage onto a much higher rate when they eventually come off their current deal. Some households could see their interest payments increase by around £3,000 a year if they take out a loan that is 3.5 percentage points higher, the Bank said on Thursday.
However, Bank of England governor Andrew Bailey said that he now expects mortgage rates to drop from their currently very high levels, but they will still remain elevated. This is because the higher base rate will soothe the financial markets and lead to a fall in swap rates, which is what mortgages are priced on.
His remarks could be a glimmer of hope for the 1.8 million households whose fixed deals are scheduled to end next year.
But for those who had to take out a new mortgage in the recent period of market volatility, the situation is “very unfortunate”, he acknowledged.
Impact of interest rates on mortgage repayments
Here’s how the 3% base rate will affect your mortgage repayments:
- If you have a tracker mortgage - your repayments will rise in line with the base rate
- If you’re on a Standard variable rate (SVR) deal - this is likely to go up too, although it is down to your lender to implement any price rises
- If you have a fixed-rate deal - you will be protected from interest rate rise for now, but when it comes time to renew, rates will be higher and you could pay £3,000 more each year
Mortgage advisers have said that anyone who is worried about their repayments going up should go straight to their mortgage provider for guidance.
Mortgage repayment calculator
Our mortgage repayment calculator, helps you to find out how much your monthly bill will be following the interest rate rise.
To find out the amount you will be paying each month, simply enter your loan amount, the interest rate and term of loan.
The calculator will then show you how much your mortgage will cost each month and how much interest you will pay over the term of the loan.
Shortly after the Bank of England made its announcement, consumer champion Martin Lewis took to social media to offer immediate insight and warn variable and tracker rate mortgage payers they can expect to see their payments increase by £40 per month/ £480 per year for every £100,000 of their mortgage.
He said: “Existing fixes won't change, but when they end new deals will be far costlier.”
He also warned people with a savings account that most of the big banks “will continue to pay diddly squat, so ditch and switch”.
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