What Does The Interest Rate Increase Mean For Mortgages?
Mortgage rates are likely to rise for many borrowers as they pass on the increase in interest rates. This means that mortgage customers on variable rates will almost certainly see their payments go up.
The Guardian reports that the Bank of England has announced that interest rates will increase from 0.25 per cent to 0.5 per cent, and is the first time the bank has increased interest rates in back-to-back months since June 2004, as the cost of living crisis deepens.
The rise in interest rates comes as a response to skyrocketing inflation, which rose to 5.4 per cent in December, the highest rate in close to 30 years. We have a look at how it could impact your mortgage.
Lenders will most likely pass on the 0.25 per cent increase in interest rates to mortgage customers, and according to calculations from UK Finance, the rate increase could add around £26 per month to typical tracker repayments.
Should the base rate increase to 1.5 per cent, which experts say is possible by the end of the year, this will add £126 per month to repayments.
Paul Broadhead, the head of mortgage and housing policy at the Building Societies Association (BSA), said: “Given the rising costs of living, including the increase in the energy price cap that we have seen this morning and the tax hikes coming in April, the bank rate rise will be unwelcome news for many.”
He added that lenders are sensitive to the growing number of people who are already feeling the squeeze in their household budgets, and advised anyone concerned about their ability to make repayments to contact their lender.
Around three-quarters of residential mortgages are on a fixed rate, protecting them from the immediate impact of Thursday’s base rate increase, while an estimated 850,000 mortgage deals are on tackers, and over a million are on standard variable (SVR) deals set by mortgage lenders individually.
If the base rate increase is passed on in full to an average SVR mortgage, this could add more than £680 over two years onto payments, based on a £200,000 mortgage, according to calculations from Moneyfacts.
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