Mortgage ‘bomb time’ warning for largest payment hike in history

Mortgage ‘bomb time’ warning as homeowners ‘face biggest rise ever’, with typical monthly payments doubling to £474, an extra £2,851 a year

  • Expected shock increase after analysis of figures released by Treasury regulator
  • The Lib Dems found that the household with a £236,000 mortgage would pay an extra £2,581
  • This would be if, as calculated, the average monthly interest payments were doubled to £474
  • News Feeds Fears Cost of Living Leads to Foreclosure

Homeowners are facing the biggest increase in mortgage interest payments in history, it is claimed today, with thousands of people with a typical outstanding home loan seeing their monthly charges double next year to almost £500.

The increased shock was forecast after analysis of figures released by the Treasury watchdog, the Office for Budgetary Responsibility (OBR) and follows attempts by the Bank of England to rein in runaway inflation by raising interest rates, leading to increases in mortgage interest rates.

Homeowners are facing the biggest increase in mortgage interest payments in history, it is claimed today, with thousands of people with a typical outstanding home loan seeing their monthly charges double 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, next year’s increase would mean monthly interest payments would double to £474, an additional £2,851 year.

The news will fuel new fears that the cost-of-living crisis will lead to properties being foreclosed on.

Last night Lib Dem Treasury spokeswoman Sarah Olney said: ‘Homeowners are paying the price for the Conservative government collapsing the economy.

The mortgage time bomb only has a few seconds left.

“This is simply unmanageable with the tax increases announced by the chancellor.”

The party wants the government to remove a planned reduction in the surcharge imposed on the banking sector and use the money to set up an emergency mortgage protection fund to help families who see their payments skyrocket.

The Office for Budgetary Responsibility forecasts that average rates on all mortgages borrowed will peak at 5% by the end of 2024

The Office for Budgetary Responsibility forecasts that average rates on all mortgages borrowed will peak at 5% by the end of 2024

The OBR bases its figures on its forecast for the Bank of England base rate, which is currently projected to peak near 5 percent in 2023-24.

He said he believes average interest rates on outstanding mortgages will peak at 5 percent 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 proportion of fixed-rate mortgages, higher rates on new mortgages take time to convert to higher average mortgage rates on stock.” of debt”.

Anyone who currently has an adjustable or tracking mortgage, and those whose fixed rates are coming to an end, will be at risk of higher fees. It is believed that up to 1.8 million homeowners will end their fixed rate offers in 2023.

Borrowers can use This is Money’s Mortgage Rate Increase Calculator to estimate how much their monthly payments could increase, depending on different potential changes in the base rate.

How far will interest rates go?

Earlier this month the Bank of England raised the base rate from 2.25% to 3%. The move came as it continues to try to control inflation and the 0.75 percentage point increase was the largest base rate increase since October 1989.

However, it was proportionally higher than that, as back then the Bank of England increased it by 1.13 percentage points, from 13.75% to 14.88%.

It was the eighth consecutive base rate increase by the Monetary Policy Committee since December 2021, decisions that have led to a significant increase in mortgage rates.

But rates were also boosted by the fallout from Liz Truss and Kwasi Kwarteng’s mini-budget, which triggered a huge round of unfunded tax cuts, shook markets’ confidence in UK government bonds, known as gilts, and led to a massive sell off.

This triggered fears that the Bank of England would have to raise rates further and the uncertainty led banks and building societies to withdraw mortgages and re-price the remaining offers to much higher rates.

This turmoil has since subsided, 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 gilt market, due to concerns over pension funds.

The Bank of England will continue to raise interest rates to curb inflation, but it is hard to predict how hard they will do so. Ultimately, it will be a balancing act between trying to keep inflation in check and avoiding a painful recession.

A little over a month ago, the common consensus was that the base rate would hit 6 percent next year.

However, some have now revised their views, partly thanks to the change in government and economic policy. Economists now expect the base rate to top out at around 4.75 percent.

What to do if you need a mortgage

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

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a house?

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

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

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

> Consult the best fixed-rate mortgages that you could apply for

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