Those borrowing mortgages on a variable rate in the UK will soon see their monthly repayments jump by hundreds of months. This news comes after the Bank of England raised the base interest rate from 0.75% to 1.25%.
This marks the fourth consecutive rise in interest rates since December 2021, where the base rate, which is what the Bank of England charges banks and lenders, stood at 0.1%.
Base rates influence how much you will be charged to borrow money, as well as how much return you will receive on your savings.
For those with fixed-rate mortgages, the rates will not change. It may however be worth considering an alternative cheap deal if this current mortgage is due to expire in the near future.
Those with tracker mortgages will see their rates go up as the interest rates rise. Furthermore, those on standard variable rate mortgages will notice that the rate is dependent on the decision of their mortgage providers. In some cases, they may not pass on the increase to their mortgage customers.
It is likely that those with tracker and standard variable rate mortgages will see their repayments increase, as this will be in line with the increase taken by most major banks and lenders.
As such, it is likely that millions of UK homeowners will pay hundreds of thousands of pounds more in mortgage repayments. Per £100,000 mortgage, variable mortgage costs will increase by around £12 a month.
Trussle, one of the UK’s most popular mortgage brokers, estimated that around three million homeowners benefitted from the lowest ever interest rates during the Covid pandemic, in combination with the stamp duty holiday.
The Head of Pensions and Savings at Interactive Investor, Becky O’Connor, said that “Variable rate mortgage borrowers will want to quickly appraise whether they want to stay on their current deal or switch to a fixed, either now, if they can, or when they come to the end of their current mortgage deal.
“Borrowers with fixed-rate deals that end in the next 12 to 18 months may already be worrying about what will be available for them when the time comes to remortgage and what will happen to their monthly costs or if they will be refused.”
Further, Senior Analyst at Hamptons, David Fell, told The Telegraph that over half of borrowers coming to the end of their mortgage deals this month will face higher rates. He said that “anyone who isn’t a first-time buyer that is coming to the end of a two-year deal is likely to see their monthly mortgage payments rise”.
As such, prospective borrowers should make use of online mortgage comparison websites. This is also applicable to those who are able to switch, as this will allow them to explore the cheapest deals as well as the best rates that can be offered to them.
It was however announced last week that the Bank of England will no longer expect lenders to check if they can boost their mortgage payments with higher interest rates.
From the 1st August this year, banks will no longer be required to stress-test their borrowers’ finances with a mortgage market affordability test.