Millions of homeowners have been warned they face a mortgage “time tomb” following the biggest interest rate hike in almost 30 years.
The base rate, which influences how much banks and lenders charge customers, was increased from 1.25% to 1.75% yesterday afternoon.
It marks the biggest Bank of England rate hike in 27 years - and is the sixth time in a row that the base rate has been increased.
If you’re on a fixed-rate mortgage, the rate rise won’t affect your monthly bill until your current deal expires.
But experts have warned that households face paying thousands of pounds more a year when they do come to remortgage, as rates continue to rise.
Figures from L&C Mortgages show borrowers with a £150,000 mortgage on the average standard variable rate will have to pay an extra £44 a month.
This works out at an extra £528 a year.
Homeowners with a £200,000 mortgage will be paying out an extra £58 a month - or £696 a year.
If you have a £300,000 mortgage, the extra you’ll be paying each month is £87 - or £1,044.
This rises to an extra £131 each month, or £1,572 over the year, if you’ve taken out a £400,000 home loan.
L&C Mortgages says the typical variable mortgage rate was 4.74% before the Bank of England rate rise.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, warned that homeowners need to prepare for higher mortgage rates.
“Three quarters of mortgage holders are protected by a fixed rate deal, so the rises will take a while to filter through,” she explained.
“However, when their mortgage expires, they’re in for a nasty shock.”
Experts say the cheapest deals first started disappearing in November last year, in anticipation of interest rate rises.
Adrian Anderson, director at broker Anderson Harris, added: “We have a mortgage interest rate ticking time bomb scenario.
“Around 74% of mortgages are fixed.
“However, it is likely these borrowers will be moving on to much higher rates at a time when many other outgoings have already increased.”
Mortgage rates - what happens next?
Those with a tracker mortgage will see their rate go up in line with the base rate hike.
If you're on a standard variable rate (SVR) mortgage, then you'll likely see your rates go up as well.
It'll be down to your lender whether to pass on the increase - and most major banks and building societies do decide to do this.
Santander became the first major lender to raise rates on its mortgage deals - making the announcement just two hours after the base rate hike was confirmed.
Around two million people in the UK are on a variable rate mortgage.
Rachel Springall, of Moneyfacts, said borrowers on variable rates may want to check if they can save money by locking into a fixed-rate deal now.
Some lenders allow you to lock in up to six months in advance, while most will allow by at least three months.
She said: “The difference between the average two-year fixed mortgage rate and SVR stands at 1.22 percentage points, and the cost savings to switch from 5.17% to 3.95% is a difference of approximately £3,333 over two years.
“A rise of 0.5 percentage points on the current SVR of 5.17pc would add approximately £1,400 onto total repayments over two years.”
Borrowers should use a mortgage comparison to check whether you are on the cheapest deal - we've got a guide on how to find the best rates here.
When thinking about the switch remember to factor in any other costs and check if there is an early exit fee associated with your current deal.
Andrew Fisher, Chief Commercial Officer at Freedom Finance, said: “Given interest rates are likely to rise even further, it is more important than ever that people are shopping around to get the best mortgage deal.
"This means not simply taking their existing lender’s offer but comparing different options out there on the market."
