Skyrocketing interest rates could add more than £13bn to household mortgage bills by the end of next year, according to a new analysis for The Mail on Sunday.
The staggering added cost threatens to open another hole in family 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 the day before the Chancellor’s mini-budget, which was delivered nine days ago.
Staggering: Skyrocketing interest rates could add more than £13bn to household 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 works in a bid to curb runaway inflation.
Financial markets expect the base rate to rise to as much as 6 percent next year. Many lenders currently charge around 4 percent on two-year fixed agreements.
There is growing concern that a wave of mortgage defaults could hit house prices and leave banks and building societies with rapidly mounting bad debts on their balance sheets.
About 2.1 million fixed-rate mortgage deals will expire between now and the end of next year.
Those borrowers will almost certainly face much higher repayments when their existing arrangements are finalized.
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 no doubt be forced into default. The impact could be up to £13bn in additional repayments based on a £150,000 two-year fixed rate mortgage.
The biggest mortgage lenders are Lloyds, which also owns Halifax, along with NatWest, Nationwide, Santander and Barclays.
You can check what fixed-rate mortgage deals might be offered to you and how much they would cost based on the size of your mortgage, the value of the home, and how long you want to settle for. with our best mortgage rate calculator, powered by L&C.
Andrew Montlake, of mortgage broker Coreco, warned that the rate increase will mean an ‘increase in potential foreclosures’, which in turn will result in write-offs for banks and building societies. He said it is now “inevitable” that bad debts from lenders will rise.
Russ Mould, chief investment officer at stockbroker AJ Bell, said banks may have to start putting aside large sums to cover potential losses. He added: “It would be detrimental and affect their profits.”
Banking industry body UK Finance estimates that the number of fixed-rate deals coming to an end will rise by almost 40 per cent by 2023. The sharp rise follows a rise in the number of borrowers taking advantage of the tax holiday. Rishi Sunak’s ringtone during the pandemic. .
Scott Taylor-Barr, an adviser at Carl Summers Financial Services, said borrowers have been out of breath when faced with rate hikes.
He said he has advised some clients to consider delaying their retirement so they can afford higher home loan payments.
Alice Guy, personal finance expert at Interactive Investor, described the rate hike as ‘terrifying’. She said it could mean monthly payments on a £150,000 mortgage could rise by as much as £500.
The guy who prepared the analysis for the MoS said: “UK households with fixed mortgage deals could pay an extra £13bn every year in mortgage costs if interest rates hit 6 per cent in 2023, as many predict.” experts”.
He added that a family with a £200,000 mortgage could be charged an extra £724 each month, which equates to an extra £8,688 per year. Last week was described as the worst for the mortgage market since the 2008 financial crisis. Lenders pulled a record 1,000 home loan deals on Tuesday alone.
> See how much mortgage rate increases have added to costs
In recent times, homeowners have borrowed at rock-bottom rates. Fixed-rate offers were available at 1 percent as recently as last year.
Analysts fear the increased payments could send house prices tumbling next year.
Experts at Oxford Economics said that “a scenario in which house prices collapse seems increasingly likely.”
They believe that homes are currently 30 percent overvalued.
A former member of the Bank of England’s Monetary Policy Committee, who asked to remain anonymous, told The Mail on Sunday that one of the biggest problems facing the UK is a potential housing crisis.
He said that the jumps in interest rates are going to be much more significant than the stamp duty reduction. “Housing prices are definitely going to stop going up,” she added.
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. writes This is Money editor Simon Lambert.
Banks and building societies continue to lend and mortgages are still being offered and applications accepted.
However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.
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.
This is Money’s mortgage broker partner, L&C, he told me the mortgages are still available and you can use our best mortgage rate calculator to show you 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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