Owners whose mortgages directly track the Bank of England’s base rate will typically see their costs add about £50 a month, according to industry calculations.
The Bank of England raised its base rate by 0.50 percentage points on Thursday, taking it to 1.75 percent from 1.25 percent, the biggest single rate jump since 1995.
The £50.43 increase was calculated by trade association UK Finance and is based on the average mortgage balance.
This adds up to an extra £605.16 to mortgage costs over a year.
Some homeowners who are nearing the end of their terms are in for a shock when they refinance.
Simon Gaiman, managing partner at Knight Frank Finance, said: “Mortgage rates are now changing on a daily basis and lenders are giving borrowers and brokers little notice of re-pricing.
“We’re seeing two main impacts on borrowers. First, some homeowners who are nearing the end of their terms are in for a shock when they come back to refinance, because they owe so much. Unable to take as much as they had hoped.
“Others, people who want to buy, are realizing once affordable properties are out of reach.”
According to UK Finance, around nine million residential mortgages are outstanding.
About three-quarters of these are fixed-rate mortgages, which will not be affected by changes in the prime rate.
Variable interest rates may, however, increase as a result of an increase in the prime rate.
Almost one in 11 (9%) outstanding mortgages are trackers, while one in eight (12%) are standard variable rate (SVR) deals.
Borrowers may end up on SVR when their initial mortgage deal closes. The SVR is set by the individual borrower.
Going long may be on the minds of some, as further rate hikes are expected in the coming months.
According to Moneyfacts.co.uk, a 0.50 percentage point increase on the current average SVR could add almost £1,400 to a home owner’s mortgage payments over the next two years.
The calculation is based on a £200,000 mortgage being repaid over 25 years.
According to MoneyFacts records, the average SVR is currently 5.17%.
Rachel Springall, finance expert at Moneyfacts.co.uk, said people sitting on an SVR may find they can save on their mortgage costs by locking into a fixed-rate mortgage.
Based on current average mortgage rates across the market, someone could save around £3,300 over two years by switching to a two-year fixed-rate mortgage from SVR, also on a £200,000 mortgage paid over a 25-year term. Based, Ms Springall said.
He continued: “Fixing longer may be in the mindset of some, as further base rate hikes are expected to come.
“Consumers will note that the average five-year fixed rate has exceeded 4%, and the rate differential between this and the average 10-year fixed rate has closed from December 2021.
“The cost-of-living crisis, rising interest rates and rising house prices can cost buyers less if they have less disposable income and eat away at their savings.
Finding the right combination of rate, fee and quality will be key.
“On the other hand, remortgage customers may find they have more equity in their home but will need to get some independent advice on whether they can comfortably afford to change their deal.”
David Hollingworth, associate director at L&C Mortgages, said he was seeing an increasing proportion of borrowers locking into new mortgage rates up to six months before their current rate expired. .
He added: “Finding the right combination of rate, fee and quality will be critical to finding the right option to help manage what will typically be the largest exit.”
First-time buyers can also find it more of a struggle to get on the property ladder.
Property website Rightmove has estimated that new first-time buyers’ monthly mortgage payments can equate to an average of 40% of their gross salary – a level not seen since 2012.
First-time buyers typically face £22,494 for a home, compared with £14,316 a decade ago based on current asking prices, Rightmove said.
Tim Bannister, housing expert at RightMove, said: “A new record (average) first-time buyer asking price of £224,943 means a 10% deposit for a first-time buyer type of home is now cheaper than 10 years ago. 57% higher, while average salaries increased by only 31%.
Loyal savers, meanwhile, are not benefiting from the recent string of base rate rises – and could miss out on better returns if they fail to compare deals and switch, Moneyfacts said.
The market average Easy Access savings account paid 0.69% in August, up from 0.18% in August 2021.
Easy Access Isas meanwhile typically pay 0.76% interest, up from 0.24% in August 2021.
Miss Springle said: “Some savers may be impatient, but there is no guarantee they will see any benefit from a rise in base rate. Thankfully, Challenger Bank and Building Societies are in this space. The competition continues.
Households are coming under increasing pressure from rising bills – and the Resolution Foundation think tank has warned that inflation could hit 15% in the first quarter of 2023.
The latest base rate rise was announced on the same day that Ofgem confirmed that the energy price cap would be updated quarterly rather than every six months, as it warned that consumers ” “It’s going to be very difficult in the coming winter.”
Data released by the Bank of England last week showed that household credit card borrowing rose at the fastest annual rate since 2005 in June, while deposits on accounts fell. .
Cost-of-living support, including a £400 discount on energy bills for households and targeted support for particularly vulnerable people, is being rolled out in the coming months.
Rebecca McDonald, Chief Economist at the Joseph Rowntree Foundation, said: “Surprisingly high inflation will hit low-income families hard.
“We already know that seven million low-income families had to sacrifice food, heating, even showers this year because they couldn’t afford them.
“Many people also took out credit to pay their bills and fell behind on their payments. Putting more families at financial risk, with higher interest rates will make it much harder to pay.”