Millions face rocketing mortgages bills as base rate tipped to reach 6%

By Liam On Oct 2, 2022

Sky-high interest rates could add more than £13bn to households’ mortgage bills by the end of next year, according to a new analysis conducted for The Mail on Sunday.

The staggering additional costs threaten to create another hole in household budgets at a time when many families are struggling due to the cost of living crisis.

The Bank of England raised interest rates by 0.5 percentage point to 2.25 percent on the day before the Chancellor’s mini-budget, which was delivered nine days ago.

Shocking: Rising interest rates could add more than £13bn to households’ mortgage bills by the end of next year

Huw Pill, the Bank’s chief economist, warned last week that further significant hikes are in the pipeline in an effort to curb rising inflation.

Financial markets expect the base interest rate to rise by as much as 6 percent next year. Many lenders currently charge about 4 percent on two-year fixed deals.

There are growing concerns that a wave of mortgage defaults could hurt home prices and leave banks and mortgage brokers with rapidly rising bad debts on their balance sheets.

An estimated 2.1 million fixed-rate mortgage agreements will expire between now and the end of next year.

Those borrowers will almost certainly face much higher repayments when their existing solutions end.

Forecasts suggest that a typical homebuyer will have to pay hundreds of pounds more per month. Many families with overburdened finances will find themselves in trouble and some of them will undoubtedly default. The impact could be up to £13bn in additional repayments based on a £150,000 two-year fixed rate mortgage.

The largest mortgage lenders are Lloyds – which also owns Halifax – along with NatWest, Nationwide, Santander and Barclays.

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

Andrew Montlake, of mortgage broker Coreco, warned that rising interest rates will mean an “increase in potential repossessions,” which in turn will lead to write-offs for banks and mortgage brokers. He said it is now an “inevitability” that lenders’ bad debts will rise.

Russ Mold, investment director at stockbroker AJ Bell, said banks may need to set aside large sums to cover potential losses. He added: “It would hurt and it would hurt their profits.”

Banking UK Finance estimates that the number of fixed-rate contracts expiring will increase by nearly 40 percent by 2023. .

Scott Taylor-Barr, an adviser at Carl Summers Financial Services, said borrowers have been “breathed in sharply” when faced with the rate hikes.

He said he has advised some clients to consider postponing retirement so they can make higher mortgage payments.

Alice Guy, personal finance expert at Interactive Investor, described the rise in interest rates as “terrifying.” She said it could mean monthly repayments on a £150,000 mortgage could rise by as much as £500.

Guy who prepared the analysis for the MoS said: ‘British households with fixed mortgage contracts could pay an additional £13 billion in mortgage costs each year if interest rates reached 6 percent by 2023, as many experts predict.’

She added that a family with a mortgage of £200,000 per month could be charged an extra £724, which amounts to a staggering £8,688 extra per year. Last week was described as the worst for the mortgage market since the 2008 financial crisis. A record 1,000 home loans were withdrawn by lenders on Tuesday alone.

> See how much mortgage rate hikes have increased costs

In recent times, homeowners have borrowed at rock bottom prices. Last year there were still deals with a fixed interest rate of 1 percent.

Analysts fear that rising repayments could push house prices down next year.

Experts from Oxford Economics said “a housing price crash scenario is increasingly likely”.

They think houses are currently overvalued by about 30 percent.

A former member of the Bank of England’s Monetary Policy Committee, who wishes to remain anonymous, told The Mail on Sunday that one of the biggest problems facing the UK is a potential housing crisis.

He said the interest rate hikes will be much more important than the cut in stamp duties. “House prices will certainly not rise again,” he added.

What to do if you need a mortgage?

Borrowers who need to find a mortgage because their current fixed-rate deal is about to expire, or because they have agreed to a home purchase have been urged to act, but not to panic, writes This is Money editor Simon Lambert.

Banks and mortgage banks are still lending and mortgages are still being offered and applications are being accepted.

However, rates change quickly and there is no guarantee that deals will last and not be replaced by higher rate mortgages.

This is Money’s best mortgage interest calculator powered by L&C that can show you deals that match your mortgage and property value

What if I have to transfer?

Borrowers should compare rates and speak to a mortgage broker and be willing to trade to get a rate.

Anyone with a fixed-rate deal that expires in the next six to nine months should research how much it would cost to re-mortgage now — and consider taking on a new deal.

With most mortgage agreements, costs can be added to the loan and they are not charged until it is closed. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I buy a house?

Those with a home purchase should also aim to get rates as soon as possible so that they know exactly what their monthly payments will be.

Home buyers should be careful not to overextend themselves and be prepared for the possibility that house prices could fall from their current high levels as higher mortgage rates limit people’s borrowing capacity.

Compare mortgage costs?

The best way to compare mortgage costs and find the right deal for you is to talk to a good real estate agent.

This is Money’s mortgage broker, partner L&C told me there are still mortgages available and you can use our best mortgage interest calculator to show you deals that fit your home value, mortgage size, term and fixed interest needs.

However, keep in mind that rates can change quickly, so the advice is that if you need a mortgage to compare rates and then talk to a broker as soon as possible, they can help you find the right mortgage for you. .

> Check out the best fixed rate mortgages you can apply for

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