A £50 per month jump in the average mortgage cost after a rate hike

According to industry calculations, homeowners whose mortgages are directly dependent on the base rate of the Bank of England typically receive about £50 a month towards their expenses.

The Bank of England raised its benchmark rate by 0.50 percentage points on Thursday, from 1.25% to 1.75%, the biggest single rate hike since 1995.

The increase of £50.43 was calculated by trade association UK Finance and is based on average mortgage balances.

This amounts to an additional £605.16 in mortgage costs during the year.

Some homeowners nearing the end of their term face shock when they come to refinance.Simon Gammon, Knight Frank Finance

Simon Gammon, Managing Partner at Knight Frank Finance, said: “Mortgage rates are now changing daily and lenders hardly notify borrowers and brokers of repricing.

“We are seeing two significant impacts on borrowers. First, some expiring homeowners are shocked when they come to refinance because they can’t borrow as much as they bargained for.

“Secondly, those who want to buy understand that real estate that was once possible to buy is now out of reach.”

According to UK Finance, there are nearly nine million outstanding home mortgages.

About three-quarters of these are fixed-rate mortgages that will not be affected by changes in the base rate.

However, variable rate transactions may increase as a result of the base rate increase.

Approximately one in 11 (9%) outstanding mortgages is a tracker, and approximately one in eight (12%) are standard floating rate (SVR) transactions.

Borrowers can receive SVR when their original mortgage deal comes to an end. The SVR is set by the individual lender.

For some, fixing for a longer period may come to mind, as further increases in the base rate are expected.Rachel Springall, Moneyfacts.co.uk

A 0.50 percentage point increase in the current average SVR could add around £1,400 to homeowner mortgage payments over the next two years, according to Moneyfacts.co.uk.

The calculation is based on a £200,000 mortgage payable over 25 years.

According to Moneyfacts, the average SVR is currently 5.17%.

Rachel Springall, financial expert at Moneyfacts.co.uk, said those using SVR can save on mortgage costs by opting for a fixed-rate mortgage.

Based on current market average mortgage rates, someone switching from an SVR to a two-year fixed rate mortgage could save around £3,300 over two years, also based on a £200,000 mortgage loan repaid over 25 years , Ms. Springall. said.

She continued: “Some may consider locking in for a longer period as further increases in the base rate are expected.

“Consumers will find that the average five-year flat rate has exceeded 4%, and the gap between it and the average 10-year flat rate has narrowed since December 2021.

“A cost-of-living crisis, rising interest rates and rising home prices could devalue potential buyers if they have little disposable income and subsequently eat into their savings.

Finding the right combination of rate, commission and criteria will be critical.David Hollingworth, L&C Mortgages

“On the other hand, remortgage clients may find that they have more equity in their home, but will need to get independent advice about whether they can comfortably afford to change their deal.”

David Hollingworth, deputy director of L&C Mortgages, said he is seeing a growing proportion of borrowers fixing new mortgage rates six months before their current rates expire.

He added: “Finding the right combination of rate, commission and criteria will be critical to finding the right option to handle what will usually be the biggest outbound.”

It can also be more difficult for first-time buyers to climb the real estate ladder.

Real estate website Rightmove has calculated that new buyers’ monthly mortgage payments can average 40% of their gross salary, a level not seen since 2012.

Rightmove said first-time homebuyers typically face excessive costs of £22,494 per home, based on current asking prices, up from £14,316 ten years ago.

Tim Bannister, housing expert at Rightmove, said: “A new record (average) first-buyer asking price of £224,943 means a 10% deposit for a first-buyer-type home is now 57% higher than 10 years back. , while the average wage increased by only 31%.

Loyal savers, meanwhile, may not benefit from the recent series of base rate hikes and could miss out on higher profits if they fail to match trades and switch, Moneyfacts said.

The average easy-to-market savings account returned 0.69% in August, up from 0.18% in August 2021.

Easy access Isas, meanwhile, typically pay 0.76% per annum, up from 0.24% in August 2021.

Ms Springall said: “The patience of some savers may be running out, but there is no guarantee that they will see any benefit from the base rate hike. Fortunately, challenger banks and building societies continue to compete in this space.”

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Households are under increasing pressure from a slew of bill hikes, and the Resolution Foundation think tank has warned that inflation could hit 15% in the first quarter of 2023.

The latest base rate hike was announced on the same day that Ofgem confirmed that the energy price ceiling would be updated quarterly rather than every six months as it warned customers were facing a “very tough winter”.

Bank of England data released last week showed that households’ credit card borrowing increased in June at the fastest annual pace since 2005, while the amount of money deposited into accounts fell sharply.

Cost of living support, including a £400 rebate on household electricity bills, as well as targeted support for those who are particularly vulnerable, will be rolled out in the coming months.

Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, said: “The staggeringly high inflation will hit low-income families hard.

“We already know that this year seven million low-income families had to sacrifice food, heating and even showers because they couldn’t afford it.

“Many have also taken out a loan to pay their bills and are behind on their payments. It will be much harder to repay with higher interest rates, putting more families in financial danger.”