When the Bank of England’s Monetary Policy Committee voted by 7 votes to 2 to increase the Base Rate to 5%, it was the 13th consecutive rise after a long period of historically low interest.
And with inflation stubbornly sticking at 8.7% in April and May, there may be more to come.
This, of course, is a difficult situation for mortgage holders.
As forecasters began to predict the rise at the end of May, lenders began to withdraw hundreds of mortgage deals from the shelves.
According to Moneyfacts, nearly 800 residential and Buy to Let products were pulled as lenders began to reassess their offers.
Less than a month later, the BoE announced the expected rise of 0.5% - leaving many home-owners in dire financial straits.
2-year fixed deals
Think tank, The Resolution Foundation has warned that people looking to re-mortgage their homes will pay an average £2,900 a year extra from 2024.
And it added that it expected annual payments to be £15.8bn a year higher by 2026 than when the BoE began to raise rates in December 2021.
According to the Office of National Statistics (ONS) hundreds of thousands of homeowners are looking to remortgage in 2023.
Around 116,000 fixed-term mortgages are up for renewal in June, with a further 700,00 coming to an end before the end of 2023.
People who bought in, say Summer 2021, will see their 2-year fixed deals coming to an end. When they bought their homes they probably secured a mortgage at around 1.9%. When they come to seek their next deal they will be looking at around 6%.
Recoup their increase
This all may seem like a lot of boring old numbers but these numbers affect everybody – even those who rent, as Buy to Let landlords try to recoup their increased mortgage charges through higher rental payments.
The Government has said that tackling inflation is their highest priority and increasing interest rates is the only way to achieve that. Any attempt to help homeowners by ‘topping up’ their mortgage payment with tax-payer cash has been ruled out because it is argued, that would be, itself, inflationary.
Chancellor Jeremy Hunt did sit down with major lenders in June to discuss ways in the banks could help hard-pressed borrowers.
Three measures were agreed:
- Those agreeing to a change in the terms of their mortgage (either by extending the loan period or making interest-only payments) could return to their original deal within six months.
- Customers’ credit scores would not be affected if they entered into discussions with their lender.
- Borrowers at risk of losing their home would be given a 12-month grace period before repossession proceedings were introduced.
For those in the rented sector, there was nothing.
And for those who decide their only option is to extend the period of their loan, will find that they are paying interest for longer – costing them less each month but more in total.
For people struggling to meet their payments right now because their mortgage is tied to the variable rate, the best advice is to talk to lenders as soon as possible.
People coming to the end of a fixed deal are advised to talk to a mortgage broker who will probably be best placed to find the most suitable deal available.
Sam Richardson, Deputy Editor of Which? Money, said: “Mortgage lenders are obliged to offer support to their customers, so those struggling to meet mortgage payments should speak to their lender about what help is available.
“Doing so will not affect your credit rating. Further support may come in the form of a temporary break from payments or extending the term of the mortgage.
“If you’re entitled to benefits such as Universal Credit, you may be able to apply for the Government’s support for mortgage interest loan scheme.”
According to the BBC it is now possible for some borrowers to extend the term of their mortgages until they are aged 80. And for hard-pressed First Time Buyers struggling to save for deposits and meet the ever-more stringent affordability criteria, a 30-year term is now the norm for more than half, according to some brokers.