MORTGAGE rates are set to rise within hours after the Bank of England hiked rates – and homeowners are being urged to check exactly how much their repayments are about to go up by.
The Bank of England has raised today the base interest rate from 1.25% to 1.75% – the biggest increase in 27 years.
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The interest rate was at a historic low of 0.10% during the pandemic, but has since been increased six times as the Bank tries to tackle inflation.
The Bank of England’s monetary policy committee (MPC), which has nine members, today voted eight-to-one in favour of a rise to 1.75%.
The Bank also warned that the UK was set to enter recession this winter, with the economy forecast to fall by as much as 2.1%.
Inflation is likely to peak at 13.3% in October, it said.
The dire outlook will see household incomes fall for the next two consecutive years – the first time this has happened since records began in the 60s.
Unemployment will start to rise again next year, according to the projections.
Jane Tully, director at charity the Money Advice Trust, added: “Today’s interest rate rise will add to the worries of homeowners already struggling with soaring prices.
“October’s energy price rise is just around the corner and with inflation predicted to continue to increase into next year, there is little respite in sight for millions of people.”
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And the 1.9 million people on tracker and standard variable rate mortgages will be the first to feel the impact of the latest hike.
Banks are usually quick to pass on rate hikes to mortgage customers on a variable rate, with some increases taking effect within hours.
Those looking to get a new fixed rate mortgage will also be affected – average interest rates on a two-year deal have gone up as much as 166%.
Analysis by L&C Mortgages shows exactly how much more you will have to pay.
How much will my mortgage payments go up by?
Exactly how much you pay will depend on your mortgage deal, the size of your loan, and your mortgage term.
According to L&C, a typical variable mortgage rate was 4.74% when the Bank of England’s base rate was 1.25%.
On a 25-year £100,000 mortgage, that means monthly repayments of £569.
But with base rate at 1.75%, monthly payments will shoot up to £598.
That’s £29 extra a month, or £349 more a year.
Laura Suter, head of personal finance at AJ Bell, said: “We’re odds-on to see the biggest increase in interest rates since 1995 as it’s widely expected that the rate setters will hike rates by 0.5 percentage points.
“The move by the Bank will pile more misery on the 1.9million people with variable rate mortgages as they battle the rising cost of living.”
If your mortgage is bigger, you’ll feel the effects even more.
Monthly repayments on a £250,000 variable mortgage will rise from an average of £1,424 to £1496 after the rate hike – an extra £873 a year.
Those with a £400,000 variable mortgage will see repayments rise from £2,278 a month to £2,394 – an extra £1,397 a year.
“Borrowers will have been braced for another base rate rise, as the Bank attempts to put the brakes on soaring inflation,” said David Hollingworth, associate director at L&C Mortgages.
“That will mean another cost increase for homeowners on variable rates, alongside all the other cost of living rises hitting monthly budgets.”
What should I do now?
If you’re a homeowner, you might want to think about locking in your next mortgage deal.
While the rates you can get at the moment are not as good as during the pandemic, by historical terms, they’re still low.
Nicholas Mendes, mortgage technical manager at mortgage broker John Charcol, previously told The Sun: “For those who are currently on a lenders SVR, fixed rate or lenders discount rate due to expire in the next six months, don’t delay speaking with your lender or a broker to get a new deal in place before the cost continues to increase.”
If you have six months left on your mortgage on a fixed rate, and don’t want to pay an early repayment charge to switch to a new deal, you can fix a deal six months in advance with many lenders.
Remember, if you are thinking about getting a mortgage, you should always shop around to see how prices differ.
Price comparison sites like Compare the Market can help you find out how much lenders are willing to give you.
You should always be really careful when taking out a mortgage, and make sure you can repay whatever you borrow.
