Homeowners who exit fixed-rate mortgages face additional costs of potentially thousands of pounds per year compared to what they would have been before interest rates started to rise.
At its latest meeting, the Bank of England’s Monetary Policy Committee once again increased its base interest rate, adding pressure to borrowers as mortgage rates soared.
Someone with a two-year fixed rate of £250,000 on a 25-year home loan is looking for an extra £250 a month – or an extra £3,000 a year – to re-mortgage compared to December, when the base rate started to rise from 0.1 in cent.
The 0.5 percentage point increase last Thursday, which took the base rate to 2.25 percent — the highest level since 2008 — was the committee’s seventh increase this year as the bank continues to battle spiraling inflation.
Borrowers taking out a fixed rate mortgage may be insulated from the rate hike for now, but those using an SVR or needing to remortgage will experience a sharp rise in their monthly payments.
Rising interest rates have boosted savings deals, but have caused pain for subprime borrowers, who are seeing the cost of new fixed-rate deals skyrocket.
In December last year, the prime rate stood at just 0.1 percent, with the average rate for a five-year fixed mortgage at 2.64 percent. Some borrowers have been able to secure rates of less than 1 percent.
With prime mortgages increasing again and set to increase even more, read our guide to fixing your mortgage and what’s next for rates.
But the hike will affect borrowers differently depending on the type of mortgage they have.
For those without fixed interest rates, the BoE’s decision is likely to bring another increase as lenders respond. Borrowers on track mortgages may see their monthly costs rise rapidly, while
Those with standard variable rates, outside of the initial deal periods, can see costs rise as lenders pass on the high.
And those who depend on fixed interest rates are unlikely to escape the hike because they face higher interest rates when their term expires.
The average rate for a five-year fixed deal is now 4.33 percent, the same price offered on a 10-year fix.
We explain how much a mortgage rate increase can add to costs for different borrowers with a 25 year mortgage term.
Our figures are based on average rates across all loan levels to the value provided by Moneyfacts and the actual rates offered will vary depending on the value of the loan.
Fixed deal for 2 years
For the shorter-term deal, a two-year fix the upside could be felt sharply. In December, the two-year average repair rate was 2.34 percent, now it’s 4.33 percent.
£150,000 Mortgage: Up to £1,800 per annum
Those with an average £150,000 25-year mortgage would pay £661 a month for a December deal at 2.34 per cent, but that’s now £811. This is an annual overpayment of £1,800.
£250,000 Mortgage: up to £3,000 per annum
For borrowers with a £250,000 mortgage, monthly payments of £1,102 in December last year rose to an average of £1,352. This means an additional £3,000 per year.
£350,000 Mortgage: Up to £4,200 per annum
Buyers or homeowners with a larger £350,000 mortgage will now pay an average of £1,893 per month for a deal compared to £1,543 in December last year. This will cost an extra £4,200 per annum.
Fixed deal for five years
The average five-year fixed-rate mortgage rose from 2.64 percent in December last year to 4.33 percent this month after the base rate rose, according to data from Moneyfacts.
£150,000 mortgage: £1,644 per annum
For a five year fixed rate mortgage of £150,000 with a term of 25 years in December 2021, borrowers would have made an average monthly payment of £683. This has now increased to £820, an increase of £137 per month and a cost of an additional £1,644 per annum.
£250,000 mortgage: £2,724 per annum
At the same rate on a £250,000 mortgage, monthly payments increased from £1,139 in December 2021 to £1,366 in September this year. Annually, borrowers will pay an additional £2,724 on their mortgage.
£350,000 Mortgage: £3,804 per annum
For those on the higher end of borrowing with a £350,000 mortgage, their monthly payments would average £1,595 in December, but getting the same fixed five-year deal now would cost £1,912 a month. This comes to an additional £3,804 per annum.
Fixed deal for 10 years
The average ten-year fixed-rate mortgage rose from 2.97 percent in December last year to 4.33 percent this month after the prime rate rose.
Longer fixed-rate mortgages often cost more because of the certainty they provide to the borrower, but the average rate of 4.33 percent is now the same as a five-year fix.
It’s also an incredibly special niche compared to short-term deals.
£150,000 Mortgage: £1,332 per annum
Those taking out a £150,000 mortgage on a ten-year fixed-rate deal in December will have paid an average of £709 a month. This has now risen to £820, costing borrowers an extra £1,332 in mortgage costs per annum.
£250,000 Mortgage: Up to £2,208 per annum
For those with a £250,000 mortgage, monthly payments in December were £1,182, according to data from Moneyfacts. However, these payments will now rise to £1,366 at a cost of an additional £2,208 per annum.
£350,000 Mortgage: Up to £3,096 per annum
A £350,000 mortgage would cost £1,654 a month in December, but borrowers who strike a new deal today will pay close to £2,000 a month at a rate of £1,912. Overall, they’ll pay £3,096 more a year than those who set their rate at the end of last year.
Variable standard rates
Standard variable rate borrowers feel the prime rate rise sharply as it is often passed on to the borrower, while those with fixed term deals are not hit until they reach the end of their term.
Benchmark variable rates were already high compared to the base rate and fixed rates when the Bank of England began its increases, and so have not risen by as much as the base rate – although the latest round of increases has yet to materialize.
SVR in December averaged 4.4 percent and rose to 5.4 percent in September, according to Moneyfacts, before increasing the base rate by 0.5 percentage points last week.
£150,000: £1,056 per annum
Those who borrowed £150,000 on SVR will pay £825 a month in December, but the same amount this month will be £912 a month. That’s an extra £1,056 per annum.
£250,000 mortgage: up to £1,752 per annum
For a £250,000 mortgage the cost in December was £1,375 a month, but that figure has now risen to £1,521; At a cost of an additional £1,752 per annum.
£350,000 mortgage: up to £2,426 per annum
Those with larger loans of £350,000 will be charged £1,926 per month in December 2021 but £2,129 for the same deal this month. This works out to an additional £2,426 per annum.
How much more would you pay to fix your mortgage?
Our calculations above are based on average mortgage rates, but actual loan rates depend on individual circumstances and vary by loan-to-value.
Those who borrow small amounts against the value of their property will benefit from lower mortgage rates, with the best typically offered at 60 percent loan-to-value or less, while those with a larger mortgage relative to the value of the property, eg a 90 percent loan cent- to value, will pay more.
You can check which fixed rate mortgage deals can be offered to you and how much they will cost based on the size of your mortgage and how long you want to fix with our best mortgage rate calculator, powered by broker L&C.
Borrowers rush to lock in a lower rate
Prior to Thursday’s announcement, mortgage brokers reported that they had seen lenders have already raised their rates before the BoE revealed its decision.
Many feel that borrowers are not ready for the upcoming increases especially those who need to remortgage at the end of the fixed term. An estimated 1.8 million fixed-rate mortgages are due to expire next year, according to the UK’s British Banking Authority.
Borrowers are advised to speak to the lender as soon as possible if they are concerned about making mortgage payments or the impact of switching deals.
There are things you can do to help avoid being hit by price hikes.
Some lenders have extended the period of time you can lock in a new deal before the end of the current mortgage term, which gives borrowers some certainty about the next rate they’ll pay.
Others suggest talking to your lender about extending the term of your mortgage in order to keep paying a lower rate for a longer period.
Tom Bell, UK head of residential research at Knight Frank, said: ‘Nearly four million first-time buyer mortgages have been issued since 2009, which is a whole lot of homeowners who don’t know what it’s like when monthly interest payments go up. concretely. .
There is still supported demand in the housing market, which will be prolonged by lower stamp duty. However, any savings are likely to be overshadowed by higher prices. What the government gives, the Bank of England more than it takes away.
Samuel Mather-Holgate, Director, Mather & Murray Financial, added: “What is interesting is that the rate of interest rate increases is lower for long-term reforms.
“This indicates that lenders believe the economy will weaken over that period and interest rates may have to be cut in the longer term.”
Best mortgage rates and how to find them
Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.
If you are looking to buy your first home, move or remortgage, or are a buy-to-let owner, it is important to get good mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with an independent, no-fee L&C broker.
The Mortgage Calculator backed by L&C allows you to filter deals to see which ones fit your home value and deposit level.
You can also compare different durations of mortgage rates, from two-year fixes, to five-year fixes and ten-year fixes, displaying monthly and total costs.
Use the tool at the link below to compare the best deals, factoring in fees and prices. You can also start an online application on your own time and save it as you move forward.
> Compare the best mortgage deals available now
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