Will mortgages soar by nearly £5000 a year?
Interest rate hikes to fuel repossessions
HOME owners could be paying nearly £5,000 extra a year for mortgages as interest rates on loans head towards 7%.
That will double this year’s projections for repossessions to 24,000 by 2024, according to Capital Economics’ analysis of latest figures from the Bank of England.
Spokesman Andrew Wishart said: “The big risk is that the BOE can’t get inflation down and interest rates keep rising.
“Repossessions will come down the line in a year to 18 months.”
Although economists are hoping interest rates will peak at 3 or 3.5% next year, Liz Truss’s favourite finance guru Sir Patrick Minford is warning they could hit 7%.
On Thursday, the BOE announced the highest base rate rise in 27 years of 0.5% to 1.75%, an extra £52 a month on the average home loan – £198 more since last November.
If rates do go up to 7%, it means a £200,000 repayment mortgage over 25 years, costing £1,001 a month now, would go up an extra £414 a month or £4,944 a year. Rate rises will increase the cost of loans on 850,000 properties with tracker mortgages, and 1.1 million on variable rates. And one in three of the nine million borrowers on fixed deals will see them ending within the next two years.
Home owners will have to cope with price rises of 13% and job losses in a recession the BOE predicts to last for 15 months as unemployment goes above 5%.
Stuart Powell, of Ocean Mortgages, said: “The UK economy is officially on red alert and there is sadly a lot of pain in the pipeline for potentially millions of people.”
The Nationwide building society says house prices rose again last month by 0.3% despite the cost-of-living crisis as buyers scrambled to beat interest rate hikes. That took the average cost of a home from £271,209 to £271,613. Nicholas Finn, of Garrington Property Finders, said: “Firsttime buyers have been rushing to get on the property ladder for fear higher rates would sabotage them even if they did have the necessary deposit. But a recession next year changes everything.”
The advice to home buyers from the experts is to get a five-year, fixed-term mortgage. And the 1.8 million borrowers whose fixed rates expire over the next two years should pay exit fees and find another fixed deal pronto.
The mortgage bombshell adds up to a double whammy as the energy price cap hits £3,359 in October and will now rise every 12 weeks instead of the current six months. Lib Dem Treasury spokeswoman Sarah Olney is calling for an Emergency Mortgage Support Fund to help those who cannot pay the bills and risk losing their homes. She said: “The mortgage ticking time bomb could prove disastrous for families and pensioners facing unimaginable energy bills this winter.”
Ticking time bomb could prove disastrous for families