Homeowners have been warned as interest rates soar after Bank of England increased its base rate from 2.25 per cent to three per cent, the highest for 14 years.
New Chancellor Jeremy Hunt warned of a prolonged recession as he said families will face “very tough” times as mortgage costs rise, but insisted he was clearing up the economic mess left by the Liz Truss mini-Budget fiasco.
As the Daily Record explained, those on fixed-rate mortgage holders are cushioned from the immediate impact of the base rate rise. However, there are still concerns that people will have to remortgage their home onto a much higher rate when they leave their current deal. This comes as the Bank said on Thursday, November 3 that some households could see their interest payments increase by around £3,000 a year if they do take out a loan that is 3.5 percentage points higher.
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But with this, Bank of England governor Andrew Bailey also said that he now expects mortgage rates to drop from their current high levels, although they will remain elevated, as the higher base rate will regulate the financial markets and lead to a fall in swap rates, which is what mortgages are priced on.
For the 1.8 million households whose fixed deals are scheduled to end next year, the governor's remarks could be a glimmer of hope. But he went on to acknowledged that the situation is "very unfortunate" for those who had to take out a new mortgage in the recent period of market volatility.
Impact of interest rates on mortgage repayments
Here’s how the three per cent base rate will affect your mortgage repayments:
- If you have a tracker mortgage - your repayments will rise in line with the base rate
- If you’re on a Standard variable rate (SVR) deal - this is likely to go up too, although it is down to your lender to implement any price rises
- If you have a fixed-rate deal - you will be protected from interest rate rise for now, but when it comes time to renew, rates will be higher and you could pay £3,000 more each year
Mortgage advisers have said that anyone who is worried about their repayments going up should go straight to their mortgage provider for guidance.
Mortgage repayment calculator
Our mortgage repayment calculator, can help homeowners find out how much the monthly bill will be following the interest rate rise.
To find out the amount you will be paying each month, simply enter your loan amount, the interest rate, and term of loan.
The calculator will then show you how much your mortgage will cost each month and how much interest you will pay over the term of the loan.
Shortly after the Bank of England made its announcement, consumer champion Martin Lewis took to social media to offer his expert advice.
He said: “Existing fixes won't change, but when they end new deals will be far costlier.”
He also warned people with a savings account that most of the big banks “will continue to pay diddly squat, so ditch and switch”.
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