With the cost of living crisis worsening, many homeowners are buckling under the weight of their repayments and the interest hike could be the final nail in the coffin for many. Recent data showcased almost half of homebuyers dread not having enough to cover the bills, with 31 percent of Britons struggling to keep up with their financial commitments.
Online mortgage broker Trussle noted that this rise, combined with the four previous rises could see mortgage bills increasing by £1,667.16 annually.
The Bank of England met for a fifth time today and the 0.25 rise was voted by a majority of 6-3, while those in the minority noted they would have preferred a 0.5 percent hike.
As a form of control over the spiralling inflation rate, the BoE has increased the base rate by 0.25 base points, making the current rate 1.25 percent.
This is one of the highest rates for over a decade.
This could see savers receiving better offers and products, although as seen with past rises this could take a while to feed through to them.
What will likely happen far sooner is banks passing on the rise to their mortgage customers, increasing and changing their payments if they are not on a fixed mortgage.
Experts have warned this could lead to a stampede of homeowners trying to remortgage, with the last base rate rise seeing a 43 percent year-on-year remortgaging cases in May.
Chief commercial and growth office ast Smoove, Simon McCulloch, shared: “Whilst the rates continue to rise, we should expect a busy time ahead for mortgage brokers and the legal profession as individuals look to refinancing.”
Martin Lewis took to Twitter to advise savers and homeowners alike on what to expect from the rise.
He noted: “Variable rate mortgages will typically be £12/month per £100,000 more.
“Fixed rate mortgages won’t change till fix ends, then new rate likely higher.”
CFO at Habito, Martijn van der Heijden, noted that the base rate is not changed without a fair amount of thought.
He shared: “With higher rates, comes higher borrowing costs – for people, businesses and the government. The Bank of England doesn’t want to risk stalling the UK’s fragile economic recovery post-Covid. So, deciding to raise interest rates, and by how much, is a fine balancing act.”
He added inflation is also a huge factor for mortgage holders as their monthly outgoings grow closer to their total income.
Mr van der Heijden shared: “We’ve had enquiries from customers wanting to remortgage to change their term from 20-years remaining to 30-years remaining.
“This is to reduce their monthly repayment amounts to give more financial breathing room as they navigate the rising cost of living.”
She said: “People are already struggling due to the cost-of-living crisis and an increase in interest rates, and as a result mortgage rates, compounds the situation. Fortunately, the large majority of borrowers are on fixed rate deals so at least in the short term, they won’t see a change. However, when those deals come to an end a severe shock could be in store. Those on variable or tracker mortgages will already see their monthly payments increase.
“After today’s rise to 1.25 percent, someone with a mortgage worth £250,000 over 25 years would pay a monthly payment of roughly £970.”
She also added that “further rate hikes” are not “out of the question” warning that the housing market in general could be battered.
Ms Noye concluded: “Once again, the biggest losers are first time buyers.
“They face a steep uphill battle to get on the housing ladder having to contend with rising interest rates, which make mortgages less affordable, inflation eating away at their deposits and the rest of the cost-of-living pressures.”