Tracker mortgages up £50 per month
Bank of England rate rise means subsequent leap in some loan repayments
Homeowners whose mortgages directly track the Bank of England base rate will see around £50 per month added to theircoststypically,accordingto industry calculations.
The Bank of England raised the base rate by 0.50 percentage points recently, taking it from 1.25% to 1.75%, marking the biggest single rate jump since 1995.
The £50.43 increase was calculated by trade association UK Finance and is based on average mortgage balances.
This adds up to an extra £605.16 in mortgage costs over the course of a year.
Simon Gammon, managing partneratKnightFrankFinance, said: “Mortgage rates are now changing on a daily basis and lenders are giving borrowers and brokers little notice about repricing.
“We’re seeing two significant impacts on borrowers. Firstly, some homeowners who are nearing the end of their terms are facing a shock when they come to refinance, because they are unable to borrow as much as they hoped.
“Secondly, those who are looking to buy are realising once obtainablepropertiesarenowout of reach.”
There are nearly nine million residential mortgages outstanding, according to UK Finance.
Aroundthree-quartersofthese are fixed-rate mortgages, which will not be influenced by changes to the base rate.
Variable-rate deals however may increase as a result of base rate hikes.
Around one in 11 (9%) outstanding mortgages are trackers, while around one in eight (12%) are standard variable rate (SVR) deals.
Borrowers may end up on an SVR when their initial mortgage deal comes to an end. The SVR is set by the individual lender.
A 0.50 percentage point rise on the current average SVR could add around £1,400 on to a homeowner’smortgagepayments overthenexttwoyears,according to Moneyfacts.co.uk.
The calculation is based on a £200,000 mortgage being paid back over 25 years.
The average SVR is currently 5.17%, according to Moneyfacts’ records.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said those sitting on an SVR may find they can save on their mortgage costs by locking into a fixed-rate mortgage.
Based on current average mortgage rates across the market, someone switching from an SVR to a two-year fixedratemortgagecouldsavearound £3,300overtwoyears,alsobased on a £200,000 mortgage repaid overa25-yearterm,MsSpringall said.
She continued: “Fixing for longer may be in the mindset for some, as there is anticipation for further base rate rises to come.
“Consumers will find that the average five-year fixed rate has breached 4%, and the rate gap between this and the average 10yearfixedratehasclosedinsince December 2021.
“The cost-of-living crisis, interest rate rises and house price growth could price out would-be buyers if they have little disposable income and subsequently eat into their savings.
“On the other hand, remortgage customers may find they have more equity in their home but will need to get some independent advice on whether they can comfortably afford to switch their deal.”
DavidHollingworth,associate director at L&C Mortgages, said heisseeingagrowingproportion of borrowers lock into new mortgage rates up to six months before their current rate is due to expire.
He added: “Finding the right combination of rate, fee and criteria will be crucial to find the rightoptiontohelpmanagewhat willtypicallybethesinglebiggest outgoing.”
First-time buyers could also find it more of a struggle to get on the property ladder.
Property website Rightmove estimated that new first-time buyers’ monthly mortgage payments could equate to an average of 40% of their gross salary – a level not seen since 2012.
Rightmove said first-time buyers typically face stumping up a deposit of £22,494 for a home, based on current asking prices, compared with £14,316 a decade ago.
Rebecca McDonald, chief economist at the Joseph
Rowntree Foundation, said: “Staggeringly high inflation is going to hit low-income families hard.
“We already know seven million low-income families had to sacrifice food, heating, even showers, this year because they couldn’t afford them.
“Many also took on credit to pay their bills and are falling behind on their payments. This will be much harder to pay off with higher interest rates, putting more families in financial peril.”