Homeowners urged to ‘focus on long term’ as ‘daunting’ interest rate hike hits mortgages

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The Bank of England increased the base rate by half a percentage point to 1.75 percent, the sixth increase in recent months, in a bid to tackle inflation. With energy bills set to vastly increase going into the winter months, people who are paying off their mortgages may be worried about how they will cover the soaring costs.

Cecilia Mourain, managing director for Homebuying at app-based savings group Moneybox, said some lenders increased their rates even before the announcement from the central bank.

She said: “Since the start of the year we’ve seen lenders pull their popular mortgage deals at short notice, so it’s more important than ever first time buyers consider working with an informed and trusted broker who can secure the best rate in the shortest timeframe possible.

“The recent succession of base rate rises can seem daunting – especially for first time buyers – but we need to keep it in context. Rates declined sharply in 2020 and remain in line with the past 10 year average.

“Where possible, aspiring homeowners need to dissociate as much as possible from what’s happening in the very short term, and try to focus on the long term benefits of home ownership.

“There will always be periods of recessions and then periods of growth, the key is to be in it for the long term.”

Analysis by the Liberal Democrats showed of the 2.1 million mortgage holders in London and the South-East, some 27 percent have fixed-rate mortgages set to expire in less than two years.

The party’s Treasury spokeswoman, Sarah Olney, said: “This is a hammer blow to homeowners who are already struggling to keep up with sky-rocketing bills.

“The mortgage ticking time bomb could prove disastrous for families and pensioners facing unimaginable energy bills this winter.”

Nathan Emerson, CEO of estate agents group, Propertymark, said many people are looking to take out mortgages despite the rate increase.

He said: “Buyers will be watching interest rates very closely, but the gradual nature of their upward trajectory from a historically low base is unlikely to be a factor that on its own has too much of an effect on the confidence of those who are serious about moving.

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“This is borne out by our own data which shows potential buyers registering with our member agents have outnumbered new property listings throughout the first six months of the year, and by seven to one in June alone.

“During the same period the Monetary Policy Committee has raised the base rate four times.”

Finances app TotallyMoney and MoneyComms have calculated for the average UK property costing £270,708, with a 75 percent loan to value, the rate increase will mean mortgage repayments will cost £196 a month more than in November last year.

Alastair Douglas, CEO of TotallyMoney, said: “Repayments for the average home are set to rise by £52, an increase of £196 per month since last autumn.

“What’s more, this isn’t an isolated problem.

“With everything ranging from phone bills to food feeding inflation, costs will continue to soar over the upcoming months, increasing pressure on household finances for millions.

“The one in three homeowners whose fixed-rate deal is soon coming to an end should start planning ahead.”

An Ipsos poll published this morning found 64 percent of respondents are fairly or very concerned about the prospect of rising interest rates.

Many young people are worried by the change, including 80 percent of those aged 18 to 34.

Gideon Skinner, head of political research at Ipsos in the UK, said: “With the Bank of England stating they need to put up interest rates to help bring inflation down, there is concern about the impact of higher interest rates too – which suggests exploring additional solutions to help people who are facing financial difficulties will be high on the public’s wish-list for the new prime minister’s government.”

Simon Jones, CEO of personal finance comparison site InvestingReviews.co.uk, told Express.co.uk Britons on standard variable rate mortgages would suffer the most from a higher interest rate.

He said the hike will add £70 a month to the costs of a typical £250,000 mortgage.

He also warned of the “very real risk” such a large increase could tip Britain into recession.

He said previously: “Ordinary workers have already seen their disposable incomes eroded by inflation, and interest rate rises would reduce consumer purchasing power even further.”

Simon Harvey, head of FX Analysis at Monex Europe, said the higher rates will combine with future energy price hikes to force Britons into more tough financial decisions.

He said: “As Ofgem increase their energy price cap again in October, the average Brit may have to tighten their belt further and reduce discretionary spending.”

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