Mortgages rise with base rate
Rising repayments add to outgoings amid living costs squeeze
The latest Bank of England base rate rise will place a further squeeze on mortgage borrowers, while savers are yet to feel much benefit from the recent rate hikes, according to experts.
The rate edged up to 1.25% on Thursday, up from 1% previously, and is the latest in a string of hikes.
Krishnapriya Banerjee, a managing director in Accent ure’ s UK banking practice, said :“While the cost-of-living squeeze is undoubtedly hitting consumers hard, we’re now also seeing the rate rises taking their toll.
“A number of the major banks have raised fixed mortgage rates, forcing homeowners to pay hundreds of pounds more for new mortgages.
“However, few are seeing this reflected in savings accounts, as banks are yet to pass on higher interest rates to savers.”
Three-quarters (75%) of the just under nine million residential mortgages outstanding are fixed rates, according to trade association UK Finance. These borrowers will not immediately see the impact of the base rate increase on their mortgage payments.
Homeowners on variable deals tracking the base rate will see an impact. Some lenders may also decide to put up their SVRs (standard variable rates), which they set themselves.
The average SVR has already increased from 4.40% in December 2021 to 4.91% in June 2022, according to Moneyfacts. co.uk.
According to UK Finance, 1.3 million fixed mortgages are ending at some point this year – meaning many homeowners will be looking for a new deal.
David Hollingworth, associate director at mortgage adviser L&C Mortgages said: “We’ve seen more borrowers looking to secure a rate further ahead of the end of their current deal, in an effort to get ahead of the increases.”
Homeowners looking to fix into a new mortgage deal may find that their choice has shrunk.
According to financial information business De faq to, the numberoffixed-ratemortgageson the market has decreased recently.
It counted 1,953 fixed-rate mortgage deals available, down from 2,086 deals two months ago.
Speaking about the potential impacts on the housing market, Jason Tebb, chief executive officer of property search website
OnTheMarket.com said: “As long as buyers remain confident about obtaining the mortgages they need and being able to afford them, modest increments in rates, while unwelcome, are unlikely to result in a slamming on of the brakes.”
Mark Manning, managing directoratLeeds-basedNorthern Estate Agencies Group, whose brands cover areas including Manchester, Lancashire and Yorkshire, said: “It’s my view that the market will become more sensitive to prices being pushed too far, and sellers will need to be more realistic when deciding what price to sell for.”
Simon Leadbetter, Global CEO of Fine & Country said: “Existing homeowners remain in a strong position to trade up given the gains they have made in the boom.
“Meanwhile struggling first time buyers, who already face the greatest hurdles in the housing market, may find themselves trapped in expensive rentals for even longer.”
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “Borrowers who lock into a fixed deal can protect themselves from future rate rises, but those building a deposit may not be able to afford a mortgage as interest rates and living costs continue to climb.
“Fixed rates are on the rise, with the average two-year fixed-rate rising by almost one percentage point since December 2021.
“As the rate gap between the average two-year and five-year fixed-rate has narrowed, fixing for longer may be a sensible choice.
“Borrowers could even lock into a fixed mortgage for a decade if they are prepared to commit to such a lengthy fixed term.
“Seeking advice is sensible to assess the abundance of deals out there to ensure borrowers find the most appropriate choice based on the overall true cost.”
Ms Springall said switching from an SVR, which borrowers often end up on when their initial deal comes to an end, to a fixed rate could significantly reduce someone’s mortgage repayments.
She said: “The difference between the average twoyear fixed mortgage rate and SVR stands at 1.66 percentage points, and the cost savings to switch from 4.91% to 3.25% is a difference of approximately £4,418 over two years (based on someone with a £200,000 mortgage over a 25-year term on a repayment basis).
SVRs are set by individual lenders, and Ms Springall said a rise of 0.25% on the current average SVR of 4.91% could add around £700 onto someone’s total re payments over two years, a calculation which was also based on having a £200,000 repayment mortgage.