The Bank of England nodded through a widely anticipated 0.75 per cent increase in its base rate on Thursday which will add to the mounting pressures on family finances when mortgage lenders confirm the move to mortgage holders in the next few weeks.
Even those paying rent to private landlords could feel the effects if they pass on the costs. The move will also hit credit card holders and people and firms that have taken out loans.
Steve Barras, development officer at Just Credit Union, said: “As a rule of thumb for each one percentage point the mortgage rate increases repayments increase by roughly £50 for every £100,000 borrowed.
“The base rate has increase from 0.1 per cent November 2021 to three per cent and an average mortgage is around £150,000, so many people may have seen their repayments increase by around £200 per month.
“The market is predicting that the Bank of England base rate will rise above four per cent by the end of 2022 and as high as 5.5 per cent by July 2023.
“People are advised to build these market expectations into their financial planning.”
Mr Barras added: “Many people will see an increase in their cost of borrowing either now or in the near future. If you have a variable rate tracker mortgage, linked to the BoE base rate you are likely to see an immediate impact on your mortgage repayments.
“People with fixed rate mortgages are protected for the period of their fix. However, once they reach the end of their current deal, they are likely to see a large increase in the cost of mortgages available.
“The interest rate rise will make re-mortgaging more expensive and with lots of households’ income and expenditure currently squeezed many will find it difficult to shop around and switch to the best available deals. Many may find themselves trapped in expensive mortgages with no ability to change to a better deal.”
Just Credit Union is Shropshire and Telford & Wrekin’s not-for-profit savings and loans co-operative. Its loans are not dependent on the Bank of England.
For savers though, rising interest rates are good news as it means returns, very low for many years, should begin to rise
Most existing personal loans in the UK are on a fixed rate and these rates will not change. However, the rates for new loans from most lenders are very likely to increase. There is also likely to be an increase in the cost of credit card rates for both new and existing users.
Homeowners with mortgages are likely to take the biggest hit according to Just Credit Union.
Almost two million people on variable and tracker rates will see their monthly bills rise as a result.
Those on fixed rates mortgages are protected for the moment, but they are likely to see a large increase in the rates when their fixed rate ends – resulting in a large jump in their monthly repayments.
Mr Barras added that Just Credit Union will not be increasing its existing or future rates.
“Because of the unique way credit unions are funded, Just Credit Union will not be increasing the rates on existing loans or on future borrowing,” he said
“Just Credit Union is about people in our community helping other people in the same community. What people save with us is what we lend to others in the area. The interest on the loans pays to run the credit union and not increase the profits of national or international corporations.
“If there is a surplus at the end of the year the board of volunteers recommends the payment of a dividend to our savers which is then agreed at our annual general meeting.”
Advisers at Citizens Advice in Shropshire have called for banks to show understanding as interest rates increase.
In the last three months to October 2022, the county organisation has seen 180 per cent increase in people approaching them for for support with debts. It has risen from 44 people in the previous three months to 123 in the latest quarter.
It has also seen a near 60 per cent increase in people who needed charitable support from the foodbank
Morgan Wild, the head of policy at the national Citizens Advice, said: “Right now, people are facing a double whammy of soaring interest rates and sky high inflation.
“Those on expiring fixed-rate mortgages could face hikes of hundreds of pounds to their monthly payments. And people on variable rates will already be seeing their costs go up.
“This comes on top of other pressures like energy bills going through the roof and the food shop not stretching as far.
“At this critical time, banks must show understanding to anyone struggling with repayments. People might be worried to ask for help so it’s essential lenders proactively reach out to offer support.”
Research published by Citizens Advice shows that one in four mortgage holders couldn’t afford to see mortgage payments rise by £100 a month. Almost half (45 per cent) would be unable to afford an increase of £250 a month.
Source By https://www.shropshirestar.com/news/cost-of-living/2022/11/04/start-planning-now-for-more-mortgage-rate-increases—shropshire-finance-expert/