Homeowners to pay £300 more on mortgage bills

Mortgage Rates
Mortgage Rates

More than 1.4 million homeowners face yet another increase in their mortgage bills with the Bank of England raising the official interest rate to 4.25pc.

It means 639,000 mortgage borrowers on tracker rates – which rise and fall in line with central rates – will see their payments go up by £285 a year on average, according to the banking trade body UK Finance.

Another 773,000 on “standard variable” rates will be hit with increases of £182 a year.

The Bank Rate is now at the highest level since the 2008 financial crisis. It comes after Wednesday inflation data showed rising costs climbed to 10.4pc in February, up from 10.1pc, defying expectations of a drop.

Homeowners with tracker deals will have mortgage repayments that are £394 more per month, on average, than they were in December 2021, before the Bank Rate started climbing from a low of 0.1pc.

For mortgage borrowers on SVRs, the increase will amount to £251 a month.

David Hollingworth, of broker L&C Mortgages, said growing numbers of borrowers were switching from trackers to fixed-rate mortgages as the price gap between the two types of mortgages narrowed.

In the immediate aftermath of Kwasi Kwarteng mini-Budget in September, fixed mortgage rates spiked above 6pc, prompting some homeowners to choose cheaper tracker rates.

Since then however, the average two-year fixed mortgage rate has dropped to 5.31pc, while the average five-year deal is currently 4.96pc, according to the analyst Moneyfacts.

The average two-year tracker deal, by comparison, is now 4.83pc and expected to increase tomorrow.

Mortgage rates are still substantially higher than they were in December 2021, when the average two-year fix was 2.34pc. The average five-year fix was at 2.64pc and the average tracker at 1.58pc.

Mr Hollingworth said he did not expect fixed rates to keep dropping.

Earlier this week, it had looked like fixed rates might come down even further, amid predictions that turmoil in the banking sector would force the Bank of England to abandon future interest rate rises.

But an unexpected increase in inflation to 10.4pc on Wednesday has largely reversed those market expectations.

Mr Hollingworth said: “If borrowers are thinking of fixing but are wondering whether they should hold off in the hope that rates are going to get lower, I think you probably should just grab a rate whilst you can get it.”

He said property buyers could always revisit the mortgage rate before completing their purchases.