Just one day after the speech and mortgages are ALREADY going up
Inflation alert means millions face huge rise
MORTGAGE costs are expected to soar as lenders pull their cheapest deals amid fears of an imminent interest rate rise.
Squeezed households are already facing a cost-of-living crisis, with inflation predicted to hit as high as 5 per cent.
Analysts are now warning that the Bank of England could be forced to increase interest rates as soon as next week to keep a lid on rising prices.
This would be a major blow for millions of homeowners hit by higher monthly bills as a result.
Mortgage rates plummeted to a record-low over the summer as banks and building societies fought to attract new customers.
But since the Budget on Wednesday, major lenders, including Barclays, Halifax, HSBC and NatWest, have all announced rate increases.
And after the weekend there will no longer be any five-year loans priced under 1 per cent.
Analysts at Capital Economics said yesterday that there is now ‘a high chance’ the Bank of England will increase its base rate to 0.25 per cent next Thursday, and that it may then rise to 0.5 per cent in February. Forecasters at the independent Office for Budget Responsibility (OBR) also issued a stark warning to homeowners, suggesting they could be facing the biggest increases in interest payments since the financial crisis.
Its figures showed that rising inflation could prompt the Bank of England to increase base rate from 0.1 per cent to 0.75 per cent by the end of 2023. And in its worst-case scenario, rates could hit 3.5 per cent.
Figures from investment firm AJ Bell show that if base rate rises to 0.75 per cent this would add £50 a month – or £600 a year – to the cost of a £150,000 mortgage.
At 3.5 per cent, borrowers would have to pay an extra £284 a month or £3,408 a year.
The OBR figures also showed that the amount paid in mortgage interest could surge by 13 per cent in 2023. By comparison, the amount paid in mortgage interest fell by just over 2 per cent this year.
If base rate rises, nearly a quarter of borrowers on variable mortgage deals would see an almost immediate increase in their bills.
Borrowers on fixed rate loans would not have to pay anything extra until the end of their mortgage term. But mortgage costs for new customers taking out fixed rate deals are already creeping up.
Barclays announced plans to raise its mortgage rates by up to 0.35 percentage points the morning after the Budget.
A two-year fixed deal for borrowers with a 40 per cent deposit rose from 0.91 per cent to 1.26 per cent, adding an extra £288 a year to the cost of a typical £150,000 loan taken over 25 years, according to broker L&C.
TSB revealed rate increases of up to 0.35 percentage points just hours after Chancellor Rishi Sunak’s speech.
It previously had the lowest twoyear fixed deal on the market at 0.84 per cent, but this has now increased to 1.09 per cent, an extra £192 a year. The lender also withdrew all its three-year fixed offers.
Virgin increased its rates on Wednesday evening by up to 0.25 percentage points, including some of its green home deals.
Halifax and HSBC announced rate rises of up to 0.2 percentage points and 0.05 percentage points respectively just hours ahead of the Budget.
And NatWest revealed a spate of rate increases of up to 0.1 per cent on Wednesday afternoon. Laura
Suter, head of personal finance at AJ Bell, said: ‘Homeowners need to be aware that it’s a case of when, not if, for an interest rate rise now and the clock is ticking on the record low mortgage rates we’ve all become accustomed to.
‘Anyone who signed up to a twoyear fixed rate deal earlier this year will face a stark rise when they come to re-mortgage in the first half of 2023.’
Andrew Montlake, of Coreco mortgage brokers, said: ‘It looks like the era of ridiculously low rates is coming to an end. We may not see the like again in a long time.’
The housing price boom is also forecast to come to an end, according to the OBR report.
But property prices are still expected to continue rising over the next five years, albeit at a slower pace of 3.22 per cent in 2022 and 0.9 per cent in 2023.
‘The clock is ticking’