Interest rates rise again

Mortgage misery as base rate hits 0.5% – and analysts say it could triple by next summer

AROUND two million homeowners will be hit by mortgage bill hikes within weeks.

The Bank of england’s decision to raise interest rates to 0.5 per cent will cost the average borrower with a £150,000 variable rate loan £21 more a month or £252 a year.

Repayments for those with larger mortgages of £450,000 will jump by a more dramatic £62 a month or £744 a year, according to broker L&C. This is the second base rate increase in less than two months and a major blow for borrowers already facing crippling energy bill rises and tax hikes.

Analysts also warned that spiralling inflation means the base rate is on course to rise even faster than expected. AJ Bell predicted it will hit 1 per cent by May and 1.5 per cent by the middle of next year.

At 1.5 per cent, a typical £150,000 loan would cost homeowners an extra £1,272 a year. Those with a £450,000 mortgage would pay £3,804 more.

Myron Jobson, senior personal finance analyst of Interactive Investor, said: ‘Upping the rate of interest is meant to rein in the ballooning cost of living, but it will have the opposite effect for the 1.1million homeowners on standard variable rates and the 850,000 on tracker deals’.

Consumer champion Martin Lewis, of Moneysavingexpert.com, added that the interest rate rise would ‘add fuel to the financial fire’. Britain’s biggest building society Nationwide revealed it would pass on the full 0.25 percentage point increase to customers on tracker and standard variable mortgage deals less than two hours after the Bank of england’s announcement.

Price hikes will take effect from March 1, with borrowers on its standard variable rate paying 3.99 per cent. But savers will have to wait to find out if they will benefit from higher interest rates, it said.

And while Nationwide has raised some savings rates, customers with its popular easy access account continue to earn as little as 0.01 per cent.

Santander was also quick off the mark with a mortgage rate rise. Borrowers on its older standard variable rate deal will pay 4.74 per cent from March.

Skipton Building Society said rates for customers on tracker deals would increase within two weeks. Barclays will pass on the full rate rise to customers on standard variable and tracker deals from March 1. Tracker rates for new borrowers will increase from today. Yet while most banks will be quick to pass on any rate rises to mortgage customers, experts warned that savers are likely to miss out.

Many high street giants have failed to improve their savings deals after the base rate rose from a record-low 0.1 per cent to 0.25 per cent in December.

Laura Suter, head of personal finance at AJ Bell, said: ‘While banks are quick to pass on base rate increases to their mortgage customers, savers will have to wait longer and many won’t see any increase at all. Instead banks will pocket the difference to boost their profits.’

even if banks do pass on the full rate rise to savers, even the best deals will still not come close to matching inflation, which is now expected to hit more than 7 per cent in April. This means savers’ spending power will be eroded. The most recent rate of inflation was 5.4 per cent.

Borrowers who have locked into a fixed mortgage will not see any bill increase until their deal expires. But with interest rates tipped to rise five more times this year, many lenders are pulling their cheapest deals for new borrowers.

David hollingworth, of mortgage broker L&C, said: ‘If mortgage borrowers failed to take notice of the December hike then hopefully the decision to lift rates again will be enough to trigger a reaction.

‘Mortgage rates have already risen from the ultra-low trough of last year but still offer borrowers substantial savings and a chance to remove any uncertainty.’

‘Banks will pocket the difference’