Warning over mortgage 'timebomb' from biggest hike in payments ever

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Warning over mortgage ‘timebomb’ as homeowners ‘face biggest hike ever’ – with typical monthly interest payments doubling to £474 – an extra £2,851 a year

  • Shock rise predicted after analysis of figures published by Treasury watchdog
  • Lib Dems found household with £236,000 mortgage would pay extra £2,581
  • This would be if, as calculated, mean monthly interest payments double to £474
  • News fuels fears that cost of living will lead to properties being repossessed 

Homeowners face the biggest hike in mortgage interest payments ever, it is claimed today, with thousands with a typical outstanding home loan seeing their monthly charges doubling next year to almost £500.

The shock rise was predicted after analysis of figures published by Treasury watchdog the Office for Budget Responsibility (OBR) and follows attempts by the Bank of England to tame soaring inflation by hiking interest rates – leading to rises in mortgage interest rates.

Homeowners face the biggest hike in mortgage interest payments ever, it is claimed today, with thousands with a typical outstanding home loan seeing their monthly charges doubling next year to almost £500. (File image)

Homeowners face the biggest hike in mortgage interest payments ever, it is claimed today, with thousands with a typical outstanding home loan seeing their monthly charges doubling next year to almost £500. (File image)

The Liberal Democrats, who carried out the analysis, calculate that for a typical household with an outstanding mortgage of £236,000, the hike next year would mean monthly interest payments doubling to £474 – an extra £2,851 a year.

The news will fuel fresh fears that the cost of living crisis will lead to properties being repossessed.

Last night Lib Dem Treasury spokesman Sarah Olney said: ‘Homeowners are paying the price for the Conservative Government crashing the economy.

‘The mortgage ticking time bomb has only seconds left.

‘This is simply unmanageable with the tax rises announced by the Chancellor.’

The party wants the Government to scrap a planned reduction on surcharge imposed on the banking sector, and use the money to set up an emergency mortgage protection fund to help families seeing their repayments soar. 

The OBR bases its figures on its forecast for the Bank of England base rate, which is currently predicted to peak at close to 5 per cent in 2023-24. 

It said it thinks that average interest rates across outstanding mortgages will peak at 5 per cent in the second half of 2024, the highest level since 2008.

New mortgage rates are already above this level but the OBR said: ‘Due to the relatively large share of fixed-rate mortgages, higher rates on new mortgages take time to feed through to higher average mortgage rates on the stock of debt.’

Anyone currently on a variable or tracker mortgage, and those whose fixed rates are coming to an end, will be at risk of the higher charges. As many as 1.8m homeowners will come to the end of their fixed-rate deals in 2023, it is thought. 

Borrowers can use This is Money’s mortgage interest rate rise calculator to work out how much their monthly payments could rise by, depending on different potential base rate changes. 

How high will interest rates go?

Earlier this month, the Bank of England raised the base rate from 2.25 per cent to 3 per cent. The move came as it continues to try and bring inflation to heel and the 0.75 percentage point rise was the biggest base rate hike since October 1989.

Proportionally it was bigger than that though, as back then the Bank of England upped it by 1.13 percentage points from 13.75 per cent to 14.88 per cent.

It was the Monetary Policy Committee’s eighth consecutive base rate hike since December 2021 – decisions which have led to a significant rise in mortgage rates.

But rates were also driven up by the fallout from Liz Truss and Kwasi Kwarteng’s mini-Budget, which delivered a huge round of unfunded tax cuts, shook markets confidence in UK government bonds and led to a sell-off in the gilts market.

This triggered fears that the Bank of England would have to raise rates by even more and the uncertainty led banks and building societies to pull mortgages and reprice those deals remaining on offer at much higher rates. 

This turmoil has since died down, with Jeremy Hunt and Chancellor and Rishi Sunak as Prime Minister restoring a sense of stability and the Bank of England staging an intervention in the gilts market, due to pension fund concerns. 

The  Bank of England will continue to hike interest rates to curb inflation, but how hard they will go is difficult to predict. It will ultimately be a balancing act between trying to keep inflation under control whilst averting a painful recession.

Little more than a month ago, the common consensus was that the base rate would reach as high as 6 per cent next year. 

However some have now revised their view, partly thanks to the change in Government and economic policy. Economists now expect base rate to peak at about 4.75 per cent.

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic.

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

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 

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