Urgent warning for mortgage bills as Bank of England prepares for historic interest rate rise this week

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THOUSANDS of homeowners are about to see their mortgage repayments go up by hundreds of pounds a year, as the Bank of England prepares for a rise in interest rates. 

The Bank is expected to raise the base rate from 1.25% to 1.75% on Thursday.

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There are just under 9 million people on residential mortgages in the UKCredit: Getty

The interest rate was at a historic low of 0.10% during the pandemic, but has since risen as the Bank tries to tackle inflation – and now the rate is set to rise again.  

Homeowners who are on a variable or tracker mortgage are likely to see their monthly repayments rise as a result.

Those on tracker mortgages will see a change as they are directly pegged to the base rate. 

And those on a standard variable rate (SVR) are likely to see a change but will have to wait and see how their lender reacts and when.

Some banks announced rises within minutes last time there was an interest rate rise.

Mortgage experts have warned that people on these mortgages should see if they can get themselves onto a fixed rate now to protect themselves from further interest rate rises.

There are just under 9million people with residential mortgages which are outstanding in the UK, according to the latest data from UK Finance. 

Some 75% of these are on a fixed mortgage, 9% are on a tracker mortgage and 12% are on a Standard Variable Rate.

A 0.5 percentage point rise to interest rates could add around £74 a month to a typical variable rate mortgage – or £888 a year.

That’s based on a £250,000 loan with a 25 year term, according to David Hollingworth, associate director at L&C Mortgages.

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But even if you have a fixed rate mortgage, you could find your repayments are about to get more expensive if your term is set to run out. 

With a fixed-rate deal you lock in the term for a set period. But when you come to get a new deal rates can be higher than when you previously fixed.

Many banks have increased interest rates recently after the Bank of England hiked rates.

The latest analysis from Moneyfacts found that the average standard variable rate, which borrowers default to after their fixed-rate deals end, has gone from 5.06% to 5.17% in a month.

The average two-year fixed-rate deal went from 3.74% to 3.95%, it was 2.52% a year ago (August 2021).

And the five-year fix average is up from 3.89% to 4.08%, it was 2.75% last August.

What should I do now? 

If you’re a homeowner, you might want to think about locking in your next mortgage deal

While the rates you can get at the moment are not as good as when the interest rate was lower, but by historical terms, they’re still low. 

Nicholas Mendes​ mortgage technical manager at mortgage broker John Charcol said: “For those who are currently on a lender’s SVR or a tracker with a rate due to end, don’t delay speaking with your lender or a broker to get a new deal in place before the cost continues to increase.”

Nicholas warned that over the next six months we could be seeing average rates reaching 4% or 5% by the end of the year.

He added that if you have six months left on your mortgage on a fixed rate, and don’t want to pay an early repayment charge to switch to a new deal, you can fix a deal six months in advance with most lenders.

This advice was echoed by other mortgage experts.

“We have been advising clients who have fixed rates coming to an end to lock in a new deal as early as possible,” said Greg Cunnington, from mortgage broker LDN Finance. 

“The good news is that an increasing number of lenders will allow this to be six months beforehand.

“As such, anybody within this window should speak to a mortgage intermediary ASAP to lock in a new mortgage rate in case they rise further.”

If you are on a fixed rate with a year left or longer, and think it is worth paying an early repayment charge (ERC) to tie in for a longer deal, you’ll need to keep some things in mind. 

“You need to take into consideration the costs of this decision, the early repayment charge percentage, and other associated fees the lender may have for clearing the loan early (i.e., mortgage exit fee),” said Nicholas from John Charcol. 

If this affordable and this might be worth considering.