Financial guru Martin Lewis has explained how much homeowners can expect their mortgages to go up by if interest rates keep climbing.
This week, a number of banks and lenders started pulling deals over fears for the UK economy following the Mini-Budget. New Chancellor Kwasi Kwarteng announced the biggest tax cuts in 50 years - alongside increased borrowing.
The pound plunged to an all-time low against the US dollar on Monday following the Mini-Budget and sparked fears that interest rates could rise to 6% next year. When interest rates rise, this affects anyone on a tracker mortgage and normally people on standard variable rate (SVR) deals.
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If you have a tracker mortgage, your monthly repayments will move in line with the base rate - meaning you’re paying more for your mortgage. Most standard variable rate (SVR) deals will also become more expensive, although it is down to your lender to decide whether they put up your rates, reports The Mirror.
If you have a fixed-rate mortgage, then you’ll be protected from any rises until your current deal comes to an end. However, homeowners will face paying thousands of pounds more when they come to remortgage due to how much rates are rising.
Interest rates have been steadily going up over the last few months and are currently at 2.25%. The Bank of England hiked its base rate for the seventh time in-a-row earlier this month.
Writing in the latest MoneySavingExpert newsletter, Martin Lewis explained how the interest rate hike could affect your monthly mortgage repayments. He said: "For each 1 percentage point your mortgage rate increases, expect to pay roughly £50 more a month (£600/year) per £100,000 of mortgage debt."
The MSE founder went on to warn how rising rates "will likely push millions renewing when their fixes end into 'can't pay my mortgage' territory".
If you're on a tracker or SVR mortgage, and you know your new mortgage rate following the base rate rise, you should see if you can save money by switching to another deal. Those on a fixed-rate deal that is coming to an end, should also be actively looking for a new deal. Some lenders let you lock in a rate six months in advance - and many more let you lock in three months ahead.
"If your fix ends before March 2023, check deals now, as rates are likely to rise further, and today's rates may soon disappear," urged Martin. If your fixed-rate deal isn't going to end soon, then you'll need to factor in any early exit penalty fees to work out if you'll be better off overall.
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