MORTGAGE borrowers are already braced for a hike in their monthly repayments after the Bank of England increased interest rates.
A number of banks immediately announced they would be passing on the rate rise to borrowers, dealing households another bill blow just days before Christmas.
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The Bank of England’s monetary policy committee yesterday hiked interest rates for the first time in three years.
They were increased from a record low of 0.1% to 0.25%.
A rise in interest rates, also known as the Bank of England base rate, had been anticipated for months due to rising inflation.
A number of banks had even started increasing their mortgages rates weeks ago in anticipation of a rise.
The rise will mean homeowners with tracker mortgages will see their monthly repayments increase as they typically follow the Bank of England base rate.
Banks could also hike their standard variable rates (SVR), which are the deals borrowers fall onto once their contract ends and if they fail to switch.
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Approximately 850,000 mortgage borrowers have a tracker rate mortgage currently, according to trade body UK Finance.
It estimates that a rise in the bank base rate of 0.15 percentage points will lead to an average increase in repayments by £15.45 per month or £185.40 per year.
Around 1.1 million borrowers are on SVRs, according to UK Finance, which said the rise translates to an estimated increase of £9.58 per month on average for these homeowners or £114.96 per year.
Here is how the main high street banks have responded to the interest rate rise so far for their mortgage borrowers.
Barclays
Barclays did immediately cut its SVR when interest rates were reduced at the start of the pandemic.
It has wasted little time in passing on the increase this time round as well.
Borrowers have been told that its residential mortgage SVR will rise from 4.59% to 4.74%, and its buy to let SVR will increase from 5.09% to 5.24% as of January 1.
A homeowner with a £150,000 mortgage on a Barclays SVR would have been paying £842 per month but this will rise to £854 in January.
That is an extra £12 per month but adds up to £144 over a year and £288 over two years.
Tracker mortgage borrowers will also see their monthly repayments rise in January.
HSBC
HSBC tracker mortgage customers have been told that a rate rise will mean the interest charged will change within a day, which will affect the amount of interest they pay.
Customers are given at least 17 days notice of a change though so the increased payments won’t kick in until next month.
However, the lender has said its SVR won’t necessarily rise just because the base rate does but it is kept under review.
Lloyds Bank
Lloyds Bank’s tracker mortgage customers will see their monthly repayments rise but the timings will depend on the terms and conditions of their contract.
The lender, which also owns Halifax, is giving its SVR customers until February 2022 before it hikes its rates.
After this, the Halifax Homeowner Variable Rate currently at 3.59% will increase to 3.74% and the Halifax SVR currently at 3.59% will increase to 3.74%
The Lloyds Bank Homeowner Variable Rate currently at 3.59% will increase to 3.74% and its SVR, currently at 2.10%, will increase to 2.25%.
That means a Lloyds Bank borrower on a £150,000 mortgage would see their SVR rise from £758 per month to £770, an extra £144 per year.
Nationwide
Nationwide has said its tracker mortgages will increase by 0.15% in line with their contracts from February 1 2022.
It is still reviewing its SVR.
NatWest
NatWest tracker borrowers have been told their rates will go up in line with their mortgage contracts and a spokesperson said the SVR was kept under constant review.
Santander
The Spanish-owed bank said all tracker mortgage products linked to the base rate will increase by 0.15% from February.
This includes the Santander follow on rate (FoR) which will increase to 3.50%.
The Alliance & Leicester and Santander SVR will increase by 0.15% to 4.49% from the beginning of February.
The Follow-on rate applies to all customers who took a mortgage deal from January 23 2018 and is the rate the customers move onto when their initial product term ends.
Mortgage deals taken before January 23 2018 will continue to transfer to Santander’s SVR when the initial product period ends.
In this scenario, a Santander customer with a £150,000 mortgage on its FoR will see payments rise from £739 to £750 per month, an extra £132 per year.
Your mortgage options
Mortgages rates have fallen to pretty cheap levels lows in recent years, especially as the base rate has been so low.
Mortgage borrowers could avoid the hike by fixing their mortgage.
Opting for a fixed rate would lock-in your monthly mortgage payment for a set period.
You can usually choose between a two, five or even 10-year fixed term period.
It will depend how long you plan to stay in your home and if you think a shorter term deal is better in case cheaper deals become available in a couple of years.
A fixed rate mortgage should always be cheaper than an SVR and in some cases a tracker mortgage as well, but even if it isn’t, you are still getting the certainty that your monthly repayment won’t change immediately if the base rates rise.
You should also check if there are exit fees for moving to a fixed rate but tracker deals often don’t have early repayment charges.
Online mortgage broker Trussle estimates that the rate hike could add £300 to the cost of mortgages each year.
This is based on a typical £224,400 mortgage amount with a 1.73% rate which would have a monthly repayment of £921.91.
If you add an extra 0.25 percentage points to the rate, a borrower could end up paying 1.98% or £921.91 per month, that’s an extra £27.04 per month or £324.48 per year.
Miles Robinson, head of mortgages at Trussle suggested borrowers could remortgage but said they should act fast to grab cheap deals before they disappear.
He said other options are overpaying your mortgage while rates are still relatively low, as this will help pay it off faster.
Robinson added: “With interest rates on the rise, now is a good time for people to start looking at their outgoings and mortgages are the perfect place to start.
“Most homeowners have one, but many don’t understand just how much they can be paying by not having the right product for them.
“Speaking with an independent adviser can help you understand your options and make the best choice. You could potentially save thousands of pounds per year by switching.”
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