An interest rate hike due to be announced today could push up mortgage costs by hundreds of pounds a year for millions of homeowners.
The Bank of England (BoE) is expected to raise its key rate by 0.25% – its fifth consecutive increase – bringing it to 1.25%.
The rise is expected to trickle down to homeowners in the form of higher interest rates on mortgages.
How you are affected depends on the type of mortgage contract you have.
Around 850,000 homeowners with a tracker mortgage will see an immediate increase in their rate as it is directly linked to the BoE rate.
Anyone with a fixed deal won’t see a change right away.
But they could see higher rates at the end of the term, either when buying a new fixed agreement or when switching back to the standard variable rate (SVR).
Homeowners currently on an SVR could see a more immediate increase in their mortgage rate if the BoE decides to raise rates.
It could cost hundreds of pounds more for the 1.1 million homeowners with this type of loan.
Previous rate hikes have already pushed up mortgage costs – and repayments could rise further.
It is estimated that a rate hike of 0.25% will add £30 a month to a £250,000 mortgage with a term of 25 years, according to credit app TotallyMoney – or £360 a year.
For a more expensive loan of £400,000, borrowers will pay an additional £48 per month, or £576 per year.
Andrew Hagger, personal finance expert at Moneycomms.co.uk, said: “The latest rise in mortgage payments will be a hammer blow to households across the country, who are facing a tsunami of increased costs for goods and essential services.
“These fixed rate customers will be protected for now, but when their fixed rate comes up for renewal, some will face a triple-digit monthly payment increase.”
Owners whose fixed deals end in the next three to six months have been urged to lock in a new rate now to avoid being burdened with additional costs.
And those using SVRs might find they get a better deal by upgrading to a fixed deal.
The Bank of England (BoE) is expected to raise interest rates to deal with soaring prices.
Inflation is currently at 9% and last month the BoE said it expected it to hit 10% this year, adding pressure on struggling households.
Experts say new economic data released this week means a bigger rate hike is not on the cards.
GDP fell 0.3% in April, an indicator that the economy is contracting rather than growing, stoking fears of a recession.
Rising rates can also drive up the cost of loans, credit cards and other types of borrowing, but savers could see a better return – if banks choose to pass on the higher rate.
What is the impact of rising interest rates on my finances?
If the BoE raises the base rate, it could impact your finances.
How the changes affect you will depend on your personal circumstances.
Many homeowners would pay more on their mortgage payments if interest rates rose.
If you have a fixed rate mortgage, the increase will not immediately affect your payments.
But other mortgages, like a tracker or a standard variable rate mortgage, could be immediately affected.
Tracker mortgages are linked to the Bank of England’s base rate – meaning you’ll see an immediate impact on your mortgage repayments if rates rise.
Homeowners with adjustable rate mortgages would not see their repayments increase immediately, but they would likely increase shortly after interest rates rise.
Your bank should notify you of a change in your SVR before it increases.
SVRs are usually higher than fixed rate deals, so if you have one, you’re probably already paying more than you need.
Switching to a fixed rate mortgage could help you avoid future hikes by locking in a lower rate.
You may find that the interest rate on your credit card or overdraft will rise in line with a rate hike from the Bank of England.
Many big banks – like Lloyds Bank, MBNA, Halifax and Barclaycard – tie their credit card rates directly to the Bank of England base rate.
This means that their credit card rates will automatically increase based on any interest rate changes – but you’ll be notified before that happens.
You can check the terms and conditions of your credit card to see if the rate may increase when the base rate does.
If you had a balance of £2,000 on your credit card, a rate increase of 0.25 percentage points would add an additional £5 to your bill per year.
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