Even more pressure is set to be piled onto homeowners this week after the news that inflation in the UK has remained at a 'historically high level'. Despite experts predicting a decline, it has been announced today (June 21) that inflation stayed stuck at 8.7 percent in May - the same rate it was at in April.
According to the Office for National Statistics, inflation is currently at the highest rate since March 1992. The unchanged rate now means that the Bank of England may be more inclined to raise interest rates even higher after their committee meeting on Thursday (June 22).
Off the back of the inflation announcement, experts are now predicting that the BoE could increase interest rates between 0.25 and 0.5 percent tomorrow, bringing the base rate up to as high as 5 percent, which is set to be more bad news for millions of mortgage holders.
Join our WhatsApp Top Stories and Breaking News group by clicking this link
Homeowners currently on a variable rate mortgages or who are approaching the final year of their fixed rate are likely to be hit with huge monthly payment increases.
According to figures from trade association UK Finance, a 0.25 percent increase in the base rate could add £23.71 to the average monthly tracker mortgage payment, while a 0.5 percent increase could add £47.43.
For someone on a standard variable rate (SVR) mortgage, a 0.25 percent rise could add £15.14 to average monthly repayments while a 0.5 percent increase could add £30.28, based on the mortgages currently outstanding.
Sign up to our weekly property newsletter by clicking here
The bulk of homeowners are said to be on fixed-rate products, although around 2.4 million deals are due to end between now and the end of next year.
According to figures from Moneyfactscompare.co.uk released on Wednesday, the average two-year fixed residential mortgage rate is 6.15 percent and the average five-year fixed residential mortgage rate is 5.79 percent
There were 4,498 residential mortgage products available on Wednesday - which is down from a total of 4,641 on Tuesday, Moneyfacts said.
One property expert has now warned that the increased Bank of England rate will have "dramatic repercussions" in the mortgage market.
"There is pressure on the Bank of England to push ahead tomorrow with its 13th rate rise since December 2021 with dramatic repercussions in the mortgage market," said Alice Haine, personal finance analyst at Bestinvest.
"As the cost-of-living crisis gets overtaken by a cost-of-borrowing crisis, mortgages have taken the lead as the biggest personal finance concern of the moment.
“The era of cheap money has come to an abrupt and brutal end with borrowers now facing repayment levels that are unaffordable for some.
“Financial markets are expecting the Bank of England to increase the base rate by 0.25 basis points on Thursday – believing another hike is the only solution to Britain’s persistent inflation problem.
“However, with inflation so sticky there are likely to be calls for a more aggressive hike of 50 bps – something needed if the Bank of England is serious about bringing inflation closer to its target of 2 percent."
Alice added: “It’s a delicate balancing act, however, with any further interest rate rises likely to cause more pain for mortgage holders at a time when their finances have only just scraped through a cost-of-living crisis.
“With the average two-year fixed mortgage rate surpassing 6% this week, the fear is that the situation could deteriorate from here if inflation cannot be brought under control, putting even more pressure on the Bank of England to hike rates."
She said that with the “full force” of mortgage rate rises so far only hitting first-time buyers or those whose fixed-rate deals have expired in the past year or so, “the crunch point will come as more people emerge from two, three and five-year fixed rate deals over the next few months and years.”
“First-time buyers looking to secure a new mortgage now will find their affordability levels heavily compromised by the combination of high inflation and high interest rates," Alice said.
“Homeowners on variable mortgages must brace their finances for an instant hit on Thursday if the Bank of England goes ahead with its 13th consecutive interest rate rise.
“Meanwhile, mortgage holders with fixed rate deals maturing soon should seek out a good independent mortgage broker – one that will deliver practical solutions to the many issues that come with higher monthly repayments."
Want to feature your home in our Where I Live series? If so, please email your details to phoebe.jobling@reachplc.com.
