finance

Mortgage warning: 1.4 million households to see payment rise become 'significantly higher'


The central bank raised the UK’s base rate for the tenth consecutive time in a row last week as it attempted to mitigate the impact of inflation on the economy. Despite this interest rate hike offering some good news for savers, people in debt and those with a mortgage are likely to lose out in some capacity. Specifically, 1.4 million homeowners with a fixed mortgage rate coming to an end will have to deal with their repayments rising as a result.

There are two main types of mortgage interest rates which homebuyers can take out: a fixed rate or a variable rate.

For a fixed rate, the interest rate they are charged remains the same for a period of time, usually between two to five years.

In comparison, homeowners with a variable rate mortgage will see the interest rate they pay change depending on different factors, such as shifts in the base rate.

As it stands, the base rate is now at four percent and, while variable rate homeowners are expecting their payments to rise, people on a fixed rate may be affected also.

READ MORE: ‘World beating’ Isa savings option yields 6.6% with more to come

This is because if their mortgage contract is coming to an end, the rate may need to be negotiated, but they will be unlikely to get a lower rate due to the hiked interest rates being passed onto lenders.

The base rate is the rate of interest the Bank of England charges other banks, building societies and lenders for borrowing money.

Readers Also Like:  Credit Suisse bank: UBS said to be in takeover talks with troubled rival

Alice Haine, a personal finance analyst at Bestinvest, broke down how many Britons on a fixed rate will see their repayments rise later this year.

She explained: “While those locked into fixed-rate deals won’t see any difference in their monthly repayment, the 1.4 million homeowners with a fixed product expiring this year will face a jump in their monthly bill.

DON’T MISS:

“This is because despite easing mortgage rates they will still move onto a significantly higher rate than they were paying before their deal started.

“Meanwhile, tracker and variable rates will increase as they are aligned to the Bank of England’s bank rate – so those with existing products should expect an instant hit while prospective buyers need to do the maths to decide which type of mortgage they want to take on.”

Even with soaring interest rates and inflation, mortgage rates have fallen down from their high in October 2022.

Rates skyrocketed when the bond market briefly went into panic mode following the infamous mini-Budget during former Prime Minister Liz Truss’ premiership.

READ MORE: Recession fears continue despite UK economy growing

As a result, if the base rate goes up in line with expectations, fixed rate mortgage deals are unlikely to rise further as lenders have already priced it in.

On top of this, demand for buying property has dropped so lenders will be competing with each other to offer better-priced deals for homebuyers.

With this in mind, there are still silver linings in the housing market despite anxieties over interest rates.

The finance expert shared some suggestions for those concerned about paying their mortgage in the months ahead.

Readers Also Like:  Scottish start-up raises £2 million to develop single-use inhaler

Ms Haines added: “With interest rates still likely to rise again from here, tracker repayments may nudge up again in the short term. Taking advice from an independent mortgage broker will identify the best path for a borrower’s finances.

“The lucky ones in all of this are homeowners that locked in longer fixes in 2021, such as a two- or five-year product, before the rate hiking cycle began.

“They can relax for now but with property prices on the slide as demand eases off, it might be wise to overpay to protect against the downturn which can negatively impact a borrower’s loan-to-value band.”

The Bank of England’s Monetary Policy Committee (MPC) will announce potential further changes to the base rate on March 23, 2023.





READ SOURCE

This website uses cookies. By continuing to use this site, you accept our use of cookies.