Mortgage borrowers whose deal follows the base rate directly will see their payments rise by an average of around £49 a month, which equates to nearly £600 a year, as a result of Thursday’s base rate hike.
The figures, from the UK Finance trade association, also showed that a borrower sitting on their lender’s standard variable interest rate (SVR) will typically see a monthly increase of just under £31, which equates to about £370 a year. .
Nearly four-fifths (78%) of outstanding residential mortgage loans are fixed-rate, meaning these borrowers will not see the immediate impact of the Bank of England’s hike in key rates from 1.75% to 2.25% on Thursday. – the highest level since November 2008.
But if they’re securely locked into their mortgage for a while, they could face a bill shock if they end up taking out a new mortgage.
Tim Bannister, Rightmove’s housing expert, said: “While the majority of people have fixed-rate mortgages, there is looming concern for those whose terms will expire in the next six months as interest rates continue to rise.
They are now faced with the difficult decision to switch to a tracker mortgage in the hopes that interest rates will fall again soon, or to strike another firm deal for a little more certainty about their spending.
“It is likely that those who choose to re-fix will find that in some cases rates have doubled since they were last stalled, and so despite paying off some of their debt, they may find that their new monthly mortgage payments are higher, even if they have moved to a lower loan-to-value (LTV) bracket and have built up equity.
“They are now faced with the difficult decision to switch to a tracker mortgage in the hopes that interest rates will fall again soon, or to strike another firm deal for a little more certainty about their spending.”
The latest increase could also make it harder for first-time buyers to get up the real estate ladder, adding to the rising cost of collecting a down payment.
According to property website Rightmove, new buyers typically have to scrape together £22,409 if they want to make a 10% down payment on a home, up from £14,135 10 years ago.
There has been speculation this week that a stamp duty cut may be in the pipeline, although some commentators have suggested it could push house prices further.
Nathan Emerson, CEO of property and rental brokers Propertymark, said: “There has been so much talk about recent surges that it has directly boosted consumer confidence and has some people worried about moving, but those looking to enter the market should come here. don’t be scared.
“Despite gains, most buyers and sellers are benefiting from the cooling in home prices and the slight easing of competition, and continue to enter a strong and healthy market.”
Those with other types of debt will also feel the pressure of rising interest rates.
Buyers and sellers benefit from the cooling of house prices
Alice Haine, personal finance analyst at Bestinvest, said: “Consumers borrowed a further £1.4bn in credit in July, a further jump from the £1.8bn increase in June – by half that amount. on credit cards only – to emphasize how difficult the current environment has become.
“Anyone with an existing fixed-rate personal loan or car loan needn’t panic just yet, as the terms of their loan have already been agreed, but new borrowers seeking credit may find the cost of debt higher.
“Anyone with a small credit card balance that they have a hard time clearing should consider switching to a 0% balance transfer to get some breathing room.
“This gives them an interest-free period to repay the debt at their own pace without the fear of the debt spiraling out of control.”
While banks and mortgage banks are quick to apply higher interest rates on debt, they may be a little slower to get the good news to savers
Meanwhile, savers may see some improvements to deals in the coming weeks.
But Ms Haine said that with high inflation, “the real return on any money held in a savings account will be very negative — no matter how high the nominal interest rate is.”
She added: “With the best easy-to-access accounts rising to 1.95% this week and the best fixed-term accounts at 3.82%, every penny of extra interest will be crucial in the fight against high inflation , which affects our purchasing power.
“But it might be worth waiting a while for the latest rate hikes to trickle down from lenders to savers.
“While banks and mortgage brokers are quick to apply higher rates on debt, they may be a little slower to get the good news to savers.”