Mortgage ‘time bomb’ warning as homeowners face biggest spike ever – with typical monthly interest payments doubling to £474 – an extra £2,851 per annum
- Expect the shock to rise after analyzing the numbers released by the Treasury Watch
- The Liberal Democrats found that a family with a £236,000 mortgage would pay an extra £2,581
- This would be, as calculated, if the average monthly interest payment doubled to £474
- News fears that the cost of living will lead to real estate repossession
Homeowners are facing the biggest spike in mortgage interest payments ever, it is claimed today, as thousands with a typical outstanding home loan see their monthly fee double next year to nearly £500.
The spike was forecast after analyzing figures published by the Office of Budget Responsibility (OBR), the Treasury’s watchdog, tracking the Bank of England’s attempts to tame spiraling inflation by raising interest rates – which has driven up mortgage rates.
Homeowners are facing the biggest spike in mortgage interest payments ever, it is claimed today, as thousands with a typical outstanding home loan see their monthly fee double next year to nearly £500. (file photo)
The Liberal Democrats, who carried out the analysis, estimated that for a typical household with an outstanding £236,000 mortgage, an increase next year would mean a doubling of monthly interest payments to £474 – an extra £2,851 a year.
This news will fuel new fears that the cost of living crisis could lead to real estate repossession.
Sarah Olney, Treasury spokesperson Lib Deem, said last night: “Homeowners are paying the price for the Tory government crashing the economy.
There are only seconds left until the mortgage ticking time bomb.
“This simply cannot be controlled with the tax increases announced by the Chancellor.”
The party wants the government to reverse a planned cut in surcharges for the banking sector, and use the money to create an emergency mortgage protection fund to help households see their payments rise.
The Office for Budget Responsibility expects average rates across all borrowed mortgages to peak at 5% in late 2024.
The Office for Budget Responsibility bases its figures on its forecast for the Bank of England’s base rate, which is currently expected to peak at around 5 per cent in 2023-24.
It said it believes average interest rates across outstanding mortgages will peak at 5 percent in the second half of 2024, the highest level since 2008.
New mortgage rates are already higher than that level, but the Office for Budget Responsibility said, “Because of the relatively large share of fixed-rate mortgages, it takes time for higher rates on new mortgages to feed into higher average mortgage rates on the debt stock.”
Anyone currently on a variable or tracker mortgage, and those whose fixed rates are coming to an end, will be at risk for higher fees. It is believed that as many as 1.8 million homeowners will reach the end of their fixed-rate deals in 2023.
Borrowers can use Money’s mortgage interest rate rise calculator to see how much their monthly payments could go up, depending on various possible changes in the prime rate.
How high will interest rates go?
Earlier this month, the Bank of England raised the base rate from 2.25 percent to 3 percent. The move came as it continues to try to control inflation, and the 0.75 percentage point rise was the largest hike in the benchmark interest rate since October 1989.
But relatively it was more than that, as the Bank of England at that time raised it by 1.13 percentage points from 13.75 percent to 14.88 percent.
It was the eighth consecutive increase in the MPC’s base rate since December 2021 – decisions that sent mortgage rates soaring.
But interest rates have also been driven by fallout from Liz Truss and Kwasi Kwarteng’s micro budget, which delivered a massive round of unfunded tax cuts, shook markets’ confidence in British government bonds, known as government bonds, and led to a sell-off.
This raised fears that the Bank of England would have to raise interest rates even further, and the uncertainty led banks and building societies to take out mortgages and reprice those deals that remained on offer at much higher rates.
The turmoil has since abated, with Jeremy Hunt as chancellor and Rishi Sunak as prime minister restoring a sense of stability and the Bank of England stepping into the gold bond market, over concerns about the pension fund.
The Bank of England will continue to raise interest rates to curb inflation, but it is difficult to predict how difficult it will be. It will ultimately be a balancing act between trying to keep inflation in check while avoiding a painful recession.
Just over a month ago, the general consensus was that the core rate would hit 6 percent next year.
However, some have now revised their view, thanks in part to a change in government and economic policy. Economists now expect the core rate to peak at around 4.75 percent.
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