Homeowners braced for mortgage rate rise shock

Homeowners are braced for rate rise shock as mortgage increases could add to cost of living squeeze

  • Bank of England rise in the base interest rate to 0.5 per cent is ‘all but inked in’
  • Would be second rise in seven weeks after push to 0.25 per cent in December
  • About two million borrowers with variable rate mortgages would be affected

Millions of homeowners face punishing mortgage bill hikes if interest rates rise to 0.5 per cent today as expected.

Analysts said an increase in the base rate was ‘all but inked in’ as the Bank of England comes under pressure to rein in soaring inflation.

This would be the second rise in just seven weeks, after the base rate edged up from a record low of 0.1 per cent to 0.25 per cent in December.

The analysts warned this could just be the start, with markets now predicting a level of 1.5 per cent by the end of the year – the highest in more than a decade.

Millions of homeowners face punishing mortgage bill hikes if interest rates rise to 0.5 per cent today as expected (stock photo)

About two million borrowers with variable rate mortgages would be affected almost immediately by any rise.

If the base rate increases to 0.5 per cent, it would cost borrowers with a typical £150,000 loan an extra £21 a month, or £252 a year, according to figures from broker L&C.

At 1.25 per cent, they would pay an extra £84 a month or £1,008 a year. And if it rose to 1.5 per cent, they would pay £106 more each month or £1,272 a year.

Borrowers with larger loans will be hit even harder by rate rises.

Someone with a £450,000 mortgage would pay an extra £744 a year at 0.5 per cent, and £3,804 more at 1.5 per cent.

Shop price hikes hit 10-year high

Shoppers have been hit by the biggest price rises in ten years after retail inflation almost doubled in a month.

The annual figure jumped from 0.8 per cent in December to 1.5 per cent in January, the highest since 2012, according to the British Retail Consortium.

Food inflation rose from 2.4 per cent to 2.7 per cent. Non-food inflation, which includes clothes and furniture, rose to 0.9 per cent in January compared with 0.2 per cent in December.

Mike Watkins of analysts NielsenIQ said: ‘The surge in energy and travel costs is now impacting disposable incomes and is likely to dent consumer’s willingness to spend.’

Pret a Manger yesterday blamed rising costs for a hike in its subscription fees.

Any increase in mortgage bills would be a major blow for households already facing soaring energy bills and tax hikes in April.

An estimated ten million people have never seen base rate rise above 1 per cent in their adult lives, according to investment firm AJ Bell.

Those with fixed mortgage deals will not see any increase in their repayments until the term ends.

But fixed loans for new buyers are getting more expensive as lenders price in expected rate rises.

With rates still very low by historic standards, experts urged borrowers to lock in now to protect themselves from bill shocks later down the line.

David Hollingworth of L&C said: ‘Although mortgage rates have been on the rise in recent months there are still highly competitive fixed rates on offer.

‘These can help homeowners shelter their mortgage payments from further rises and control their biggest outgoing when other costs are climbing. But the best deals won’t hang around for ever.’

AJ Bell said the markets were pricing in a 95 per cent chance of an interest rate rise to 0.5 per cent today.

Spokesman Laith Khalaf said: ‘A rate rise at the Bank’s February meeting is all but inked in, which, if realised, would be the first time since 2004 that the bank has raised interest rates in two consecutive meetings.

‘But this wouldn’t be the first time markets have got ahead of themselves.’ 

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