News that interest rates have risen from 4.5% to 5% is a bitter blow for homeowners, as it will inevitably mean another hike in the cost of their mortgage payments.
It's the 13th time the Bank of England has raised rates in the past 18 months after it first lifted them from record lows of 0.1% in December 2021, and millions of households are bracing themselves for mortgage pain as the cost of their monthly costs soar again.
The spiralling interest rates have meant that anyone taking out a two-year deal now on a typical £200,000 mortgage would pay an extra £65 a month compared with just four weeks ago and an extra £313 compared with this time last year, according to This Is Money. And the market is in chaos as lenders pull, withdraw and re-price deals every few days, causing uncertainty and stress for home buyers and the 1.5 million homeowners who need to remortgage this year.
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However, although prices are soaring now, even the bleakest predictions are not forecasting that high rates will persist much beyond the end of next year, so this is probably a - albeit stressful - temporary situation, and experts are advising against making any drastic changes such as selling up and renting.
Here we look at what today's announcement will mean for your mortgage and steps you can take to minimise the pain.
What is happening to my mortgage and what should I do?
If you have a fixed rate mortgage: The vast majority of mortgage holders in the UK have a fixed-rate mortgage, and for those householders, northing will change until the fixed-rate ends.
What should I do? Nothing until your fix ends. But be aware that any new deal you remortgage to in future will be more expensive, as interest rates have shot up dramatically over the past 12 months while you have been in a fix. If you want certainty and you're close to the end of your current term, you could search for a new mortgage deal now.
You can usually lock in a mortgage offer three to six months ahead of time. If you've six months or longer to go on your fix, you'll either need to wait till you're in the final three to six months of your initial deal, or pay the charge to leave your current mortgage early if you want to switch now.
If you have a standard variable rate (SVR) or discount mortgage: These will most likely rise after today's news. Currently, a typical SVR is 7.99%.
A discount mortgage follows the SVR at a set rate with a discount attached. So for example, if the SVR is 7% and the rate is SVR minus 1%, it's 6%.
What shall I do? If you're on a SVR, you can remortgage to a new deal at any time, and as SVRs tend to be pricey, you could actually save by switching your mortgage.
If you're on a discount mortgage that has gone up, check if you can remortgage without penalty. If not, again, you'll have to wait till you're in the final three to six months of your initial deal, or pay the charge to leave your current mortgage early.
If you have a tracker mortgage: These track the base rate, so mortgage costs will go up. In general, this latest rise means about a £29 increase in your monthly payments on a £100,000 mortgage.
What shall I do? Check now to see if you can switch to a better deal – though currently many existing tracker mortgage rates are far cheaper than today's fixes. Also check if there are penalties to leave your current deal now – many trackers have them.
If you do have early repayment charges, you'll either need to wait till you're in the final three to six months of your initial deal, or pay the charge to leave early.
What if you need to remortgage?
Homeowners whose deals will come to an end in the next six months should move fast to secure a new fixed mortgage deal. David Hollingworth, mortgage expert at L&C. told This Is Money: "We have been thrown back into a fast-moving mortgage market, so grab a deal while you can. If rates do end up falling before the new deal starts, you can always seek another loan with the same lender or a new one. But if rates were to continue increasing ahead of the deal you have secured, you will have bagged a bargain."
Look at the rates available across the market, rather than sticking with your existing lender and speak to a broker to help you find the best deals.
What if you have a fix ending soon?
The best advice is to start saving each month to get ready for bigger bills. If you can afford to, make regular overpayments if your lender allows it. If you can afford to pay the extra you will need to find when your fix ends into your mortgage now, it will mean that you are used to the bigger payment and the mortgage amount will have fallen, which should mean relatively lower payments. Around six months before your fix ends, speak to a mortgage broker about a new deal.
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What if you’re about to buy a home?
Higher rates will affect the budget you have made, so make sure you can afford them. And if the numbers no longer stack up, try to renegotiate on the property purchase price or rethink your choice rather than getting into financial difficulties.
