Report · Asia News Today
Will my mortgage get more expensive? For the vast majority of borrowers the answer is no: more than 7.3m (87%) of Britain’s almost 8.5m existing residential mortgages are on a fixed rate. That means their monthly repayments will stay the same until their current deal ends.
But for some, this period of calm won’t last long: if an existing deal is finishing soon, consumers could well face a payment shock. The base rate hike will immediately translate into higher borrowing costs for the 510,000 homeowners with a base-rate tracker mortgage. The rate they pay will rise in line with the Bank’s increase.
The banking body UK Finance says a typical tracker mortgage customer (with an outstanding balance of £147,000) will see monthly payments rise by £30.72 as a result of Thursday’s decision. Most, if not all, of the 470,000 borrowers on their lender’s standard variable rate (SVR) will probably pay more, too, though they may not find out immediately. Although it is likely that lenders will increase their SVRs by the full amount, they don’t have to change them.
A lender could choose to pass on just part of the rise. UK Finance estimates a typical SVR borrower will pay £14.28 a month more, assuming the rise is passed on in full. What does this mean for new mortgage deals?
These are tough times for homebuyers and those due to remortgage soon: the financial data provider Moneyfacts said this week that the average new mortgage rate has risen to a three-year high of 5.89%. That’s up from 5.83% at the start of October, and 4.99% this time last year. But there are glimmers of hope.
Today’s interest rate rise had been expected for weeks and had already been factored in to the pricing of new fixed-rate mortgages, says Nicholas Mendes at the broker John Charcol. That is why several big lenders, including Halifax, Barclays and Nationwide, were able to cut the cost of their new fixed deals earlier this week. As a result, there are a number of fixed-rate deals priced at below 5%, though these are mainly available to those with at least a 40% deposit or equity.
About 2.3m fixed-rate mortgage deals are due to end in 2027, plus roughly another 200,000 or so between now and 31 December, and most of these people will need to find a new deal. Depending on what happens with mortgage rates, those coming off five-year fixed deals will typically face a hefty jump in their monthly payments when they switch to a new product. On average, someone who took out a five-year fix in early November 2021 – which is therefore ending this month – signed up to a rate of 2.59%.
On Thursday, the average new five-year fixed deal was priced at 5.99%. Roughly, for a £175,000 repayment mortgage with 25 years remaining, moving from a 2.59% rate to 5.99% translates into a £334 increase in monthly payments – an extra £4,000 a year. For those coming off a two-year fixed deal and switching to a new fix, the typical increase in monthly payments will be a lot less dramatic.
Mendes says: “If the rise is seen as a one-off precaution, swap rates [which determine the pricing of new fixed deals] could ease and lenders would have room to keep cutting fixed rates.” But if this is seen as the start of a series of increases, “the recent improvement in mortgage pricing could stall”. What about savings rates? The returns on savings are not explicitly tied to the base rate, but Thursday’s increase is likely to benefit millions of savers who have easy-access accounts or other accounts without fixed interest rates.
However, some banks may take their time to decide if and when they will increase their savings rates. And savers need to watch out for providers that elect to only pass on some of the increase – or none of it. On Thursday morning, the average easy-access savings rate was 2.58%.
However, the “best buy” easy-access accounts pay a lot more than that – up to 5%, according to Moneyfacts. Fixed-rate savings bonds involve tying up your money for between six months and five years, and typically offer some of the highest rates. This week, the best-buy fixed-rate accounts were paying up to 5.4%.
Katie Horne, an expert at the savings platform Flagstone, says banks have been building an anticipated interest rate hike into the rates they offer on fixed-rate savings accounts for several months now, adding: “A single 0.25% base rate increase isn’t expected to move fixed rates much further.”
Source: The Guardian
