It is unlucky 13 for some!
At lunchtime on Thursday (June 22nd) the Bank of England (BoE) raised interest rates for the 13th time in a row.
That was expected, but what did come as something of a surprise (and a pretty nasty one for those people on a variable rate mortgage) is that the BoE’s Monetary Policy Committee took the decision to hike the base rate by 0.5%, taking it from 4.5% to a new figure of 5%.
Rates have not been at 5% since April 2008 – just before the global financial crisis. However, only 15% of mortgage holders are on deals linked to variable rates – compared to 70% 20 years ago.
The 0.5% hike means that those people in the UK on a typical tracker mortgage will now pay about £47 more per month. Those UK households on standard variable mortgages face a £30 per month increase.
Eight out of 10 mortgage customers hold a fixed-rate mortgage, so their monthly payments may not change immediately, but anyone seeking to remortgage now face a sharp rise in repayments when they move on to a new deal. An average two-year fixed deal, which was 2.29% in November 2021, is now above 6%.
The reason behind the BoE’s rate rise decision is that inflation was stuck at 8.7% in May.
And interest rates remain the Bank’s primary tool to fight rising inflation, despite ongoing debate over its effectiveness.
While high interest rates can benefit savers, millions of UK households face higher mortgage payments, and the government is under increasing pressure to intervene and prevent a ‘ticking timebomb’ from going off.
However, consumer champion Martin Lewis says that the mortgage timebomb has already exploded.
The founder of MoneySavingExpert.com said that in December he told a mortgage summit held by the Chancellor of the Exchequer, Jeremy Hunt, and attended by the bosses of the UK’s biggest banks, that they needed to prepare for a scenario where interest rates soared.
“Yet now the timebomb has exploded,” said Mr Lewis.
He added that if interest rates were going to be high over three or four years, then people were going to have to try and readjust their finances, if they possibly can.
- If you are coming to the end of your current mortgage agreement and need any help finding the best mortgage deal, or have any questions about your mortgage then you can have a free 15-minute consultation with Lifetime mortgage adviser Scott Kershaw CeMAP. Book here: https://outlook.office365.com/owa/calendar/[email protected]/bookings/