The Bank of England’s latest base rate hike is another “body blow” to household finance, according to the debt aid charity.
StepChange said 17% of its new clients are already behind on their mortgage.
“Another rate hike, coupled with this week’s news of rising inflation, is the latest in a series of physical blows to household finances,” said Peter Tutton, Head of Policy at StepChange Debt Charity.
He added: “For anyone concerned about rising housing costs and their ability to meet financial obligations, the most important thing is to access help as soon as possible.
“Don’t wait to contact your lender or speak to a free debt advice charity like StepChange. We’re here to support you.”
Mortgage borrowers on deals that follow the Bank of England’s base rate will now see nearly £24 a month added to their costs on average, after Thursday’s rate hike.
According to figures from trade consortium UK Finance, the Bank of England’s latest base rate increase, from 4% to 4.25%, would normally add £23.71 a month – or more than £284 a year – to the cost of a mortgage.
Meanwhile, borrowers subject to a Standard Variable Rate (SVR) would see their costs increase by £15.14 a month – or more than £181 a year – on average if the rate hike was passed by the lender.
Homeowners end up on an SVR when their initial deal ends and the SVR is set by individual lenders.
UK Finance figures are based on average balances and payments due.
It calculated that, since December 2021, the average tracked mortgage payment has increased by £393.65 a month – or about £4,724 a year.
The average SVR would increase by 251.34 per month, or £3,016 per annum, assuming base rate increases are fully capped.
About eight in 10 residential mortgages are fixed-rate based, relieving homeowners from the immediate impact of higher prime rates, though borrowers may get a bill shock when their fixed-rate deal expires and it’s time to remortgage.
Paul Broadhead, Head of Mortgage and Housing Policy at Building Societies (BSA), said: “There are about 1.8 million households close to a fixed rate finish in 2023 and most of them will see a significant increase in mortgage costs.
“Only time will tell if these increases are actually factored into the family’s financial planning. Lenders remain vigilant for borrowers facing payment shock and are ready to provide tailored support to anyone who may encounter difficulties.”
- £23.71 per month added to the average tracker mortgage
- £15.14 per month on top of an average Standard Variable Mortgage (if the lender passes the rate hike on to the borrower)
The housing market showed signs of slowing towards the end of last year.
Richard Donnell, executive director of research at real estate site Zoopla, said: “We don’t expect the increase in the base rate to make much difference to the housing market outlook.
Home demand is down from last year, but sales are still flat albeit at a slower rate.
People still want to move and households reset their plans in an environment where borrowing costs are high. There has been much talk of a major price correction in home values, and if you price your home reasonably it will probably attract interest, subject to some negotiation on the final price.”
The latest base rate increase is the eleventh in a series of increases, adding to costs for borrowers.
Which consumer group? Highlight how tenants might feel the impact of a higher base price on their housing costs.
Sam Richardson, which one? The deputy editor of Money said: “Higher rates will also have an impact on tenants, as buy-to-let landlords are more likely to pass the increased costs on to tenants.
“If you are not sure how you will be able to pay the monthly installments, contact your landlord or rental agent to see if a different payment plan is available.”
Mortgage rates jumped in the wake of last fall’s mini budget, although there have been signs recently of the market stabilizing.
Earlier this week, online financial information site Moneyfacts said average two- and five-year fixed-rate mortgages fell to their lowest in six months.
The core rate hike follows a surprise jump in consumer price index (CPI) inflation to 10.4%, although inflation is still expected to decline sharply over the remainder of the year.
The Bank’s Monetary Policy Committee (MPC) recognized the recent period of volatility in the global banking sector, after the collapse of the US Silicon Valley Bank and the takeover of Credit Suisse, but remained steadfast in its mission to return inflation to its levels. 2% target.
Andrew Montlake, managing director of Coreco Mortgage Brokers, said: “They say a week is a long time in politics, but today is an eon in financial markets.
“In the past few days, we have seen the contradictory effects of the banking drama driving down prices on the one hand, and the sudden surge in inflation pulling in the opposite direction.”
“After the unwelcome news that inflation had picked up again, it was inevitable that interest rates would follow suit in order to try and control the former,” said Tomer Aboudi, director of real estate lending at MT Finance.
A higher prime rate could give savers an extra boost, as some rates in the market have already improved in recent months.
Rachel Springol, finance expert at Moneyfactscompare.co.uk, said: “Savers might be pleased to see another rise in the BoE base rate, but they should take time to check their existing provident funds to see if they are earning a competitive return.
“Not every savings provider will pass on an underlying rate hike, so it is imperative that savers step away and switch if they find a better return elsewhere.
“If savers were to compare more accessible savings accounts, they would find that rival banks and building societies offer some of the best returns.”
She added: “Providers continue to improve their Isas funds, including ease of access to Isas.
“Keeping up with the changing market is critical for savers no matter what type of savings account best suits their needs.”
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