MORTGAGE COSTS FOR THREE MILLION HOMEOWNERS TO BE £1,000

0
60

City analysts have predicted more interest rate rises in 2023 to control inflation, with three million homeowners facing an extra £1,000 in mortgage costs. Investors expect a 5% peak in the bank rate this year, up by half a percentage point from the beginning of April. This would lead to a corresponding half-point increase in mortgage rates, costing the average homeowner £1,000 per year. Deutsche Bank upgraded its bank rate forecast from 4.25% to 4.75% as inflation continues to be a concern.

Looking for the best Mortgage Broker London Our expert mortgage brokers can help you find the right mortgage for your needs. Contact us now for a free consultation and start your home buying journey with confidence.

INFLATION TO BLAME

The Consumer Prices Index rose by 10.1% year-on-year in March due to soaring food costs, putting pressure on the Bank of England to keep raising interest rates. Inflation was higher than expected and above the bank’s own prediction. Food prices saw the fastest increase in 45 years, with a rise of 19.2% in the year to March. Europe saw a sharp drop in inflation from 8.5% to 6.9% in March, in line with expectations.

IMPACT ON HOMEOWNERS

Interest rates directly affect mortgage costs, with a half-point increase in mortgage rates costing a typical homeowner with a £200,000 loan an additional £83 per month in interest. Rates on two-year fixed rate mortgages have declined steadily to 5.26% since hitting a peak of 6.65% in October, but these rates are based on a Bank Rate peak of 4.25% or 4.5%, leaving lenders no leeway to absorb further increases. A half-point increase in mortgage rates will be a hammer blow for 2.8 million homeowners on floating-rate deals or due to renew fixed rates this year.

EXPERT OPINIONS

Senior economists warn of immediate pass-throughs from interest rate expectations to mortgage rates. Mortgage rates are expected to rise even if the bank rate does not increase, and if the Bank of England fails to reduce inflation, the bank rate could rise to 5%. RSM economist Thomas Pugh predicted a further half-point increase in mortgage rates. This will particularly burden the 1.4 million homeowners coming to the end of fixed-rate mortgage deals this year, who will have to remortgage at far higher rates than they are used to.

Key Takeaways:

  • City analysts are predicting a 5% peak in the Bank Rate this year.
  • This could lead to a half-point increase in mortgage rates, costing the average homeowner £1,000 per year.
  • March’s higher-than-expected price data has undermined the Bank of England’s credibility.
  • Food prices rose by 19.2% in the year to March, the fastest increase in 45 years.
  • Rising interest rates will result in higher mortgage costs for homeowners, particularly those on floating rate deals or renewing fixed rates this year.
  • Even if the Bank Rate does not increase, mortgage rates are expected to rise due to persistent inflation.
  • Homeowners coming to the end of fixed rate mortgage deals this year will be hit particularly hard.