Daily Mail

Millions in mortgage bills misery over rate hike No. 5

- By Victoria Bischoff Money Mail Editor

MILLIONS of homeowners face mortgage misery after interest rates jumped for the fifth month in a row to a 13-year high of 1.25 per cent.

This is the fastest that rates have risen over a six-month period since 1988.

Borrowers with variable-rate deals will see their bills soar by hundreds of pounds a year almost immediatel­y. But as lenders franticall­y pull their cheapest offers, the rise is also a major blow for 1.3million borrowers with fixed deals due to end this year.

For many borrowers, it will be the first time they have seen their monthly repayments increase when they come to remortgage.

Experts also warn that interest rates could hit 3.5 per cent by the end of next year, piling yet more pressure on households already struggling to cope with the rising cost of living.

Around two million homeowners have a variable-rate mortgage that moves up or down in line with the Bank of England base rate.

Someone with a £150,000 loan on their lender’s average standard variable rate will have to pay an extra £21 a month – or £252 a year, according to mortgage broker L&C.

This is £96 a month – or £1,152 a year – more than before interest rates began rising from a record low of 0.1 per cent in December.

Those owing more will be hit harder, with repayments on a £450,000 loan up £3,456 a year compared with six months ago.

Barclays, First Direct, HSBC and Virgin Money were among the first to reveal their variable – or tracker – rates would rise immediatel­y. Santander is raising its rates from July and Nationwide from August.

Andrew Hagger, personal finance expert at Moneycomms.co.uk, said: ‘The latest hike in mortgage payments will be a hammer blow to households who are facing a tsunami of increased costs for essential goods and services.’

Fixed-rate deals for new customers are also becoming far dearer. The lowest two-year rates from the top ten lenders have trebled on average since October last year, according to L&C. The average cheapest is 2.71

‘A hammer blow to households’

per cent, compared with 0.89 per cent nine months ago.

David Hollingwor­th, L&C associate director, said: ‘The rate at which mortgage rates have been moving has been astonishin­g. Many lenders have continued to make changes week in, week out, making it difficult for borrowers to keep tabs. If fixed rates continue to climb, they could push through the 4 per cent barrier before the end of the year.’

Laura Suter, personal finance analyst at the investment firm AJ Bell, added: ‘Millions of households will never have experience­d rates this high. Someone who locked into record low mortgage rates in recent years would face a real shock if they came to refinance that debt today.’

It is also feared that rising rates could create more mortgage prisoners – those trapped in expensive deals and unable to switch – because many banks are factoring in soaring living costs when assessing how much homeowners can borrow.

Experts also warned that renters will feel the pain as many landlords start passing on higher loan costs.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: ‘If you are on a variable rate you might want to fix sooner rather than later. The longer you leave it, the more you’ll pay’.

Meanwhile, higher interest rates

are expected to pour cold water on the booming property market and slow price growth.

There is a glimmer of hope for savers. But there are still no deals that come close to matching the 9 per cent inflation rate, which means savers’ cash will continue to be eroded in real terms. Many major banks are also still dragging their heels when it comes to passing on rate rises. Rachel Springall, finance expert at data analysts Moneyfacts, said: ‘Out of the biggest high street brands, some have passed on just 0.09 per cent since December.’

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