Higher interest rates could add more than £13bn to household mortgage bills by the end of next year, according to new analysis for The Mail on Sunday.
The staggering extra cost threatens to poke another hole in family budgets at a time when many families are struggling with 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 earlier.
Stunning: High interest rates could add more than £13 billion to household mortgage bills by the end of next year
Huw Bell, the bank’s chief economist, warned last week that further big increases are in the pipeline in a bid to bring down spiraling inflation.
Financial markets expect the base rate to rise to 6 percent next year. Many lenders currently charge about 4 percent on fixed two-year deals.
There are growing fears that a wave of mortgage defaults could hit home prices and leave banks and building societies with rapidly mounting bad debts on their balance sheets.
An estimated 2.1 million fixed-rate mortgage deals will finalize between now and the end of next year.
These borrowers will almost certainly face much higher payments when their current repairs are over.
Forecasts are that the average home buyer will have to pay hundreds of pounds more per month. Many more financially stressed families will experience difficulties and some will undoubtedly be forced into default. The impact could be up to £13 billion in additional repayments on a £150,000 two-year mortgage.
The largest mortgage lenders are Lloyds – which also owns Halifax – along with NatWest, Nationwide, Santander and Barclays.
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, the value of the house and how long you want to fix it. With our best mortgage rate calculator, powered by L&C.
Coreco mortgage broker Andrew Montlake warned that higher rates would mean “an increase in repossession potential,” which in turn would lead to writedowns for banks and building societies. He said it was now “inevitable” that bad debts to lenders would rise.
Ross Mold, chief investment officer at stockbroker AJ Bell, said banks may have to start setting aside large sums to cover potential losses. “It will harm and affect their profits,” he added.
Banking industry body UK Finance estimates that the number of fixed-rate deals ending will rise by nearly 40 per cent in 2023. The sharp increase follows a surge in borrowers taking advantage of Rishi Sunak’s stamp duty holiday during the pandemic. .
Borrowers have been “breathing really hard” when faced with rising interest rates, said Scott Taylor Barr, advisor at Carl Summers Financial Services.
He said he has advised some clients to consider delaying their retirement so they can make higher home loan payments.
Alice Jay, personal finance expert at Interactive Investor, called the price hike “terrifying.” It said that could mean monthly payments on a £150,000 mortgage could jump by as much as £500.
“British households with fixed mortgage deals could pay an extra £13 billion each year in mortgage costs if interest rates reach 6 per cent in 2023, as many experts predict,” said Guy, who prepared the analysis for the Finance Ministry.
She added that a family with a £200,000 mortgage could end up charging an extra £724 each month – which works out to an extra £8,688 a year. Last week was described as the worst for the mortgage market since the 2008 financial crisis. On Tuesday alone, lenders pulled a record 1,000 mortgage transactions.
> Find out how much the increase in the mortgage rate has added to the costs
Recently, homeowners have been borrowing at very low rates. Fixed rate deals were available at 1 percent as recently as last year.
Analysts fear that higher down payments will lead to lower home prices by next year.
“A scenario in which a collapse in housing prices looks increasingly likely,” said experts from Oxford Economics.
They believe the homes are overvalued by about 30 percent.
A former member of the Bank of England’s Monetary Policy Committee, who asked not to be identified, told The Mail on Sunday that one of the biggest problems facing the UK is a potential housing crisis.
He said jumps in interest rates would be more important than stamp duty cuts. “Housing prices will definitely stop rising,” he added.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they have agreed to buy a home, have been urged to act but not to panic, Writing this is Money Editor Simon Lambert.
Banks and building societies are still lending and mortgages are still being accepted with applications accepted.
However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.
This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.
What if I need to re-travel?
Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.
Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.
Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I’m buying a house?
Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.
Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.
L&C Mortgage Broker Partner at Money told me that mortgages are still available and you can use the best mortgage rates calculator to show deals matching your home value, mortgage size, term needs and flat rates.
Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check out the best fixed rate mortgages you can apply for
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