HUNDREDS of thousands of homeowners need to take action now or risk their mortgage repayments rocketing by a massive £2,000 a year.
这 Bank has increased the rate from 1.25% 到 1.75% piling pressure on homeowners.
Up to December last year the rate was at a historic low of 0.1% but the bank has hiked rates several times in a row since then to tackle soaring inflation.
Laura Suter, head of personal finance at AJ Bell, 说: “Anyone coming to remortgage in the next couple of months faces a huge shock in how much their monthly costs are going to rise.
“Someone coming off a two-year fix would have secured their last mortgage when rates were far lower.
“Since last year they have been steadily climbing and each time the Bank of England raises rates, mortgage rates jump too.”
Around 1.9million households across the UK are on a variable mortgage deal, according to trade body UK Finance
With this type of arrangement, 你的 monthly repayments are not locked in at a set rate.
This differs from fixed rate mortgages, where you agree to a set interest rate for a certain period of time, meaning you know exactly what your monthly repayments will be.
With a fixed deal, even if the Bank of England raises interest rates, your mortgage is not affected.
But with variable mortgages, your repayments are linked to the Bank’s base rate of interest – so when it goes up, so do your monthly repayments.
Millions of homeowners have already been clobbered by rising repayments in recent months.
If you had a £200,000 25-year mortgage which is, 例如, base rate plus 2% – then a year ago when base rate was 0.1% your monthly repayments would have been £857.
But as interest rates have climbed to 1.75%, you would now be paying an extra £2,088 a year.
How much could my repayments go up?
The way to avoid being affected by future rate hikes is to lock into a fixed mortgage deal.
But the longer you leave it to find a fixed deal, the more expensive it will be.
Mortgage providers adjust their best rates 一直 – and as the base rate goes up, their deals get more expensive.
If you’ve been on a fixed deal and it’s coming to an end , don’t be surprised if your new one is more expensive.
A typical two-year fixed rate mortgage was 1.45% 在七月 2020 – monthly repayments on a £200,000 mortgage would be £795 a month.
今天, the typical two-year fix is 2.88% – meaning you’ll pay £922 a month, an extra £1,524 a year.
If you took out a five year fixed deal in July 2017, you’ll have had an average interest rate of 1.97%. That would mean monthly payments of £845 on a £200,000 mortgage.
今天, the typical rate on a five-year fix is 2.9%, meaning monthly repayments of £917 – an extra £864 a year.
If you leave locking into a new deal until the Bank raises interest rates again, you’ll be paying even more.
After the BoE hiked rates by 0.5 percentage points to 1.75% the typical two-year fix is likely to hit 3.38%, said Laura.
That would mean monthly mortgage repayments of £970 – an extra £2,100 a year compared with 2020.
Five-year deals would hit an average of 3.4%, bringing monthly repayments to £959 – an extra £1,368 compared to 2017.
How to avoid interest rate hikes
If you’re coming to end of your fixed rate deal or already out of it, here are three things you need to do now:
You don’t have to wait for your current deal to end before you start looking for a new one.
Laura said: “Lots of people don’t realise that they can lock in a mortgage rate for six months, which means that if mortgage rates rise during that time they will end up with a cheaper deal than if they left it to the last minute.”
加, if rates were to fall before your new deal started, you usually won’t be penalised for ditching it and finding a better one.
Laura said: “Dig out your mortgage paperwork, look at when the fix is up and set a calendar reminder for six or seven months before that to get it sorted.”
If you’re already out of a deal or on a tracker or variable rate – get started now.
Extend your mortgage term
If you’re struggling to cope with repayments now that rates have gone up, then extending your mortgage term could help.
Laura said: “Many people take out a 25-year mortgage and then try to keep the same ‘pay-off’ date when they come to remortgage.
“That means if you got a five year fix in 2018 and that was your first mortgage you’d be looking at a 20-year term today.”
But if you boost your term back up to 25 年, your monthly repayments will fall as you’re spreading the debt over a longer period.
You should try to avoid doing this unless you need to though, as a longer mortgage term means you’ll pay back more interest overall.
Don’t think you have to stick with your existing mortgage provider when you’re getting a new deal – like with many things in life, shopping around different companies is important to find the best rates.
Comparison sites can help, but if you’re not sure where to start then it’s worth speaking to a mortgage broker.
Many won’t charge you for their services – instead they bill the mortgage company. But check you’re using a “whole of market” broker, not one that just works with a handful of mortgage companies.
Laura said: “Brokers can lock in deals quickly and more easily, which is helpful if you’re trying to do the research between work and getting the kids to bed.
“If you do decide to do it yourself, compare what your existing provider is offering to what else is out there and make sure you’re getting the best possible rate.”