The interest rate hike announced today could raise the cost of mortgages by hundreds of pounds per year for millions of homeowners.
bank of england (BoE) is set to increase the base rate by 0.25% – its fifth consecutive increase – taking it to 1.25%.
About 850,000 homeowners with a tracker mortgage will see an immediate increase in their rate because it is directly linked to the BoE’s rate.
No one will immediately notice the change on a certain deal.
But they can see higher rates as they approach the end of the term, either when shopping for a new fixed deal or reverting to the standard variable rate (SVR).
Homeowners currently on an SVR may see a more immediate increase in their mortgage rate if the BoE decides to increase rates.
This can cost hundreds of pounds more for the 1.1 million homeowners with this type of loan.
previous rate hike have already raised mortgage costs – and repayments could rise further.
A £250,000 mortgage with a term of 25 years is projected to increase in rate of 0.25%, according to credit app Totalmoney – or £360 a year.
For loans valued at £400,000, borrowers will pay an additional £48 per month, or £576 per year.
Andrew Hager, personal finance specialist at Moneycomms.co.uk, said: “The latest increase in mortgage payments will be a major blow to households up and down the country, which are facing a tsunami of increased costs for essential goods and services. Huh.
“Those customers will be protected at a fixed rate for now, but when their fixed rate comes up for renewal, some will face a triple-digit monthly payment increase.”
Have homeowners with fixed deals expiring in the next three to six months Urged to lock in a new rate now to avoid additional costs,
And those who can find on SVR can get A better deal than going for a surefire deal.
The Bank of England (BoE) is expecting a hike in interest rates to deal with rising prices.
Inflation is currently 9% And last month the BoE said it was expected to reach 10% this year, putting more pressure on hard-to-find families.
Experts believe that the latest data about the economy published this week means a big rate hike is unlikely.
GDP fell 0.3% in AprilAn indicator that the economy is shrinking rather than growing, fueling fears of a recession.
Rate increases can also raise the cost of loans, credit cards and other forms of lending, but savers can get better returns – if banks choose to pass on the higher rate.
How does an interest rate increase affect my finances?
If the BoE raises the base rate, it could affect your finances.
How the changes affect you will depend on your individual circumstances.
Many landlords will overpay on their own mortgage repayment If interest rates rise.
If you’re on a fixed-rate mortgage, the increase won’t affect your payments immediately.
But other mortgages, such as tracker or standard variable rate mortgages, may be directly affected.
Tracker mortgages are linked to a Bank of England base rate – meaning you’ll see an immediate effect on your mortgage payment if rates go up.
Homeowners on variable rate mortgages will not see their repayments straight away, but they will increase immediately after interest rates rise.
Your bank should inform you about the change in your SVR before your SVR is increased.
SVRs are generally higher than fixed rate deals, so you’re already paying more than you already are if you’re on one.
Switching to a fixed rate mortgage can help you avoid future increases by locking in a lower rate.
You can find that the interest rate on you Credit Card Or the overdraft will increase with the Bank of England rate hike.
Many large banks – such as Lloyds Bank, MBNA, Halifax and Barclaycard – link their credit card rates directly to the Bank of England base rate.
This means that their credit card rates will automatically increase in line with any change in interest rates – but you will be given notice before that happens.
You can check the terms and conditions of your credit card to see if the rate may increase as the base rate increases.
If you had a balance of £2,000 on your credit card, an increase of 0.25 percentage points would add an additional £5 per year to your bill.
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