How much have interest rate rises added to mortgage costs?

At the most recent meeting of the Bank of England’s Monetary Policy Committee, it raised the base rate again, increasing pressure on borrowers as mortgage rates rose.

The 0.5 percentage point increase, which brought interest rates to 2.25 percent – the highest since 2008 – was the commission’s seventh increase this year as the Bank continues to fight rising inflation.

Rising interest rates have boosted savings deals but hurt mortgage borrowers, who are seeing the cost of new fixed-rate deals rising rapidly.

In December last year, the base rate was just 0.1 percent, while the average five-year fixed mortgage rate was 2.64 percent. Some borrowers were able to secure rates of less than 1 percent.

With the base rising again, home loans will continue to rise, read our guide to determining your mortgage and what’s next for rates.

But the increase will affect borrowers differently depending on the type of mortgage they have.

For those who don’t have a fixed interest rate, the Bank of England’s decision brings another increase and their monthly payment will immediately rise at the average standard floating rate now 5.4 percent, according to Moneyfacts.

And those with fixed rates are unlikely to escape a hike as they face higher interest rates when their term ends.

The average rate for a five-year contract is now 4.33 percent, the same as the rate for a ten-year contract.

We explain how much the rise in mortgage rates can increase costs for different borrowers.

The figures are based on average rates for all loan-to-value tiers provided by Moneyfacts and the actual rates offered vary depending on the loan-to-values.

Two year fixed deal

For the shortest term deal, a two-year fix, the increase is strongly felt. In December, the average rate for a two-year fix was 2.34 percent, now it’s 4.33 percent.

In the simplest terms, those with a £150,000 mortgage paid £661 a month in December on a 2.34 percent deal, but now it’s £811. This is an increase in annual payments of £1,800.

For borrowers with a £250,000 mortgage, monthly payments rose from £1,102 in December last year to an average of £1,352. This means € 3,000 extra per year.

Buyers or homeowners looking for a larger £350,000 mortgage are now paying an average of £1,893 a month for a deal, compared to £1,543 in December last year. This costs € 4,200 per year extra.

Fixed contract for five years

The average five-year fixed-rate mortgage has risen from 2.64 percent in December last year to 4.33 percent this month, according to Moneyfacts data.

Based on a repayment mortgage over 25 years, we explain what that means for different sizes of borrowers.

For a five-year fixed mortgage of £150,000 in December 2021, borrowers would have paid an average monthly payment of £683. This has now risen to £820, up from £137 per month and costing £1,644 more per year.

For the same mortgage on a £250,000 property, monthly payments have increased from £1,139 in December 2021 to £1,366 in September this year.

Annually, borrowers would pay an additional £2,724 on their mortgage.

And for those on the higher end of borrowing with a £350,000 mortgage, their monthly payments in December would have averaged £1,595, but taking out the same five-year fixed deal now costs £1,912 a month.

This amounts to an additional £3,804 per year.

10 year permanent contract

The average 10-year fixed-rate mortgage rose from 2.97 percent in December last year to 4.33 percent this month as a result of the rise in the base rate.

Longer fixed-rate mortgages are often more expensive because of the security they provide the borrower, but the average rate of 4.33 percent is now the same as a five-year commitment.

They are also incredibly niche compared to shorter term deals.

Those who took out a £150,000 mortgage on a ten-year fixed-rate agreement in December paid an average of £709 per month.

This has now risen to £820, costing borrowers an additional £1,332 in mortgage payments annually.

For those with a £250,000 mortgage, monthly payments in December were £1,182, according to data from Moneyfacts.

However, these payments have now increased to £1,366, costing an additional £2,208 per year.

A £350,000 mortgage cost £1,654 a month in December, but borrowers closing a new deal today are paying nearly £2,000 a month at £1,912.

In total, they pay €3,096 more per year than those who set their rate at the end of last year.

Standard variable rates

Borrowers with standard variable interest rates feel that the base interest rate rises the most because they are automatically passed on to the borrower, while those with fixed-term deals are only hit when their maturity is reached.

Those with £150,000 in loans on an SVR paid £825 a month in December, but those who close a new deal this month for the same amount will pay £912 a month. This is an additional £1,056 per year.

For a £250.00 mortgage the cost was £1,375 a month in December, but this has now risen to £1,521; costs £1,752 more per year.

Those with larger loans at £350,000 were charged £1,926 per month in December 2021, but £2,129 for the same deal this month. This equates to an additional £2,426 per year.

How Much More Would You Pay to Fix Your Mortgage?

Our above calculations are based on average mortgage rates, but actual loan rates depend on individual circumstances and vary by loan-to-value.

Those who borrow smaller sums against the value of their property will benefit from lower mortgage interest rates, with the best usually being offered at 60 percent loan-to-value or lower, while those with larger mortgages compared to the property’s value, for example, 90 percent loan-to-value, will pay more.

You can check which fixed rate mortgage deals can be offered to you and how much they would cost based on your mortgage size, how long you want to commit with our best mortgage interest calculator, powered by broker L&C.

Lock in a lower rate

Ahead of Thursday’s announcement, mortgage brokers reported seeing lenders raise their rates before the Bank of England announced its decision.

Many believe that borrowers are unprepared for the upcoming increases and especially those who have to refinance at the end of a fixed term.

Borrowers are advised to talk to their lender as soon as possible if they are concerned about paying their mortgage or the impact of switching deals.

There are things you can do to avoid being hit by interest rate hikes.

Some lenders have extended the time that you can close a new deal before the end of your existing mortgage term, giving borrowers some certainty about the next rate they will pay.

Others suggest talking to your lender about extending the term of your mortgage to keep paying a lower rate for longer.

Tom Bill, head of UK Residential Research at Knight Frank, said: ‘Almost four million first-time buyer mortgages have been issued since 2009, which is a large group of homeowners who don’t know what it’s like when monthly interest payments rise significantly. .

“There is still supportive demand in the housing market, which will be extended by a reduction in stamp duties. However, any savings are likely to be overshadowed by rising interest rates. What the government gives, the Bank of England more than takes away.’

Samuel Mather-Holgate, director of Mather & Murray Financial, added: “What’s interesting is that the rate at which interest rates have risen is slower for the long-term solutions.

“This indicates that lenders believe that the economy will weaken during that period and that interest rates may need to be lowered in the longer term.”