Millions of homeowners set to face higher mortgage repayments as BoE raises interest rates
Cornerstone Tax comments on millions of homeowners facing higher mortgage repayments as BoE raises interest rates for 12th consecutive time.
The Bank of England has hiked interest rates by 0.25 percentage points – pushing the benchmark rate to 4.5% up from 4.25% – representing the twelfth consecutive rise since December 2021. Interest rates were already at a 15-year high before the increase today with the rate now matching levels last seen in October 2008.
The rise will be felt by borrowers as mortgage and loan costs are set to be higher. It will mean that a typical mortgage holder on the standard variable rate will see their monthly bills increase by £35 according to AJ Bell. The rise will be even stronger for the 1.5 million households with fixed mortgage deals set to expire this year. Homeowners with an average 2.58% fixed rate available in 2021 will see their mortgage payments increase by £13,000 a year if they have a £250,000 loan.
Group Chairman of Cornerstone Tax, David Hannah, discusses the impact of the rise in interest rates on UK households:
“I think it’s a complete mistake to raise interest rates again, this may tip the economy into recession.
“Everybody’s just about managing at the moment and if you look at the underlying factors that created this inflationary cycle, they’re not in the control of consumers.
“I think the Bank of England should have called a hold on any rise in rates for one month to see what happens to inflation in May.
“We’ve just witnessed the introduction of the 100% mortgage for renters, which means they’ve got no equity.
“Now we’re raising interest rates, putting pressure on affordability, which increases the risk of a property price decline also meaning that those 100% mortgages are going to be in negative equity.
“Homeowners coming off fixed rate deals and moving straight into a five and a half percent mortgage are going to be unable to afford them.
“That’s going to lead to a load of repossessions and forced sales which is not good news.
“That’s going to shatter confidence in the market.
“Today’s announcement from the Bank of England to increase interest rates by 0.25 percentage points to 4.5% is also set to affect first-time buyers who may now be unable to make a first step onto the housing ladder due to unaffordable mortgage rates.
“The rise will also have a knock-on effect on the rental market too – it has already been suffering from a lack of supply, and now, with a growing number of would-be buyers in need of a place to live, this is going to be exacerbated further.
“The result of this is that rental prices and competition will likely increase at a time when people are already struggling.”
Kindly shared by Cornerstone Tax
Main article photo courtesy of Pixabay
