Homeowners’ repayments to rocket by £700

MORTGAGE holders’ repayments will rise by nearly £700 a year if the Bank of England doubles its base rate as expected on Thursday, according to financial comparison group Moneyfacts.

The Bank of England’s Monetary Policy Committee (MPC) is tipped to double its base rate to 0.5 per cent in a bid to stop inflation from spiralling out of control. Economists believe MPC members will vote 8 to 1 in favour of the rate hike, which would be the first back-toback increase since 2004.

If banks and building societies increase their mortgage rates in line with the MPC as per usual, Moneyfacts estimates that the average borrower’s annual repayments will increase by £687 to £13,904.64. That is based on someone with a £200,000, 25-year standard variable repayment mortgage currently at 4.41 per cent.

Moneyfacts finance expert

Eleanor Williams urged borrowers on standard variable rates to consider moving to a fixed rate mortgage as soon as possible.

The difference between the average standard variable and fixed rates is nearly two percentage points, and Williams said a fixed rate deal would help bring stability to their finances.

Although fixed rates have risen slightly following the MPC’S shock decision to increase its base rate by 0.15 points to 0.25 per cent last month, she said lenders are still fighting for new business and there are competitive deals.

“Considering that household budgets are being tightly squeezed from various angles at the moment, this could make a substantial difference to monthly expenditure,” she said.

Martin Beck, chief economic adviser to the EY ITEM Club think tank, said that the MPC is likely to revise upwards its short-term forecast for inflation.

Last month CPI inflation hit a near-30 year high of 5.4 per cent and Beck said: “The latest CPI figure, combined with developments in wholesale energy prices, means the MPC is likely to revise up its near-term inflation forecast significantly.”

Pantheon Macroeconomics chief UK economist Samuel Tombs agreed: “The MPC almost certainly will revise up its forecast for CPI inflation for 2022 and 2023, in response to the near-term pick-up and further increase in energy prices.”

Barclays’ economists Fabrice Montagne and Abbas Khan believe that the MPC could use quantitative tightening (QT) to curb inflation. QT would see the Bank stop printing money to buy UK Government bonds, allowing interest rates on savings and bonds to rise.