Millions of homeowners were hit by another sharp rise in mortgage bills on Thursday when the Bank of England raised its interest rate by half a percentage point.
The latest increase took the Bank’s key benchmark rate from 1.75% to 2.25%, the highest since December 2008.
The move marks the seventh meeting of the Bank’s Monetary Policy Committee on a trot to order a rise in the cost of borrowing as it fights to curb soaring inflation.
The rally will be felt immediately by the approximately two million mortgage holders with variable or tracker agreements with rates moving in line with the Bank of England. The latest move will add £ 88 per month to the cost of a typical London mortgage of £ 300,000, bringing the monthly repayment to £ 1,842.
However, the three million plus fixed deals nearing the end of their tenure now face huge increases in their bills when they have to repay. Major lenders have all reassessed their fixed contracts in recent days in anticipation of the Bank’s move.
It comes the day after the Federal Reserve, the world’s largest central bank, raised its prime rate by 0.75%.
The mortgage hike is the latest in a series of cost-of-living strikes that have hit the British. Inflation was 9.9 percent in the year through August and is expected to peak in October when energy bills rise again. The energy price cap was to rise to an average of £ 3,549 for a typical household. But Liz Truss announced earlier this month that it will only go up to £ 2,500 to protect households from the worst ravages of the surge in wholesale gas prices.
Mark Harris, chief executive officer of mortgage broker SPF Private Clients, says, “While a 50bp rate hike doesn’t seem as aggressive as the 75bp proposed in some quarters, it still means a sizable increase in monthly payments for those on mortgages. With six interest rate hikes since December, as well as higher energy bills, some households will really struggle.
“We don’t believe rates will or should go much above 3 percent, despite fears that they may rise. If the Bank of England raises interest rates to say 4 or 5 percent, it would risk causing more problems than it is trying to control.
“Mortgage offers can be booked up to six months before you need them, so it may be worth securing a deal now that it can be rolled over once the existing deal comes to an end. We have news of many fixed-rate borrowers that are considering paying early repayment penalties in order to repay another deal, but this may not be in your best interest, depending on the rate and time remaining. Talk to an independent mortgage broker who will be able to advise you.