How Mortgage Companies ALREADY Raise Rates as Interest Rates Rise
HOMEOWNERS could see hundreds of dollars a year added to the cost of their mortgage as rates rise in anticipation of rising interest rates.
The Bank of England is generally expected to raise interest rates when it meets next week.
This will have a ripple effect on the monthly payments of millions of mortgage borrowers.
Those with a follow-on mortgage will feel the effects immediately, while those with a fixed rate will notice the change when their agreement ends.
A number of mortgage providers have already started raising interest rates on their transactions in anticipation of a rate hike, it emerged.
The increases have come in recent days, and there are concerns that a hint on Chancellor Rishi Sunak’s rates in the fall budget could trigger more of them.
The Office for Budget Responsibility (OBR) has warned that mortgage interest payments could rise 5.6% next year and 13.1% the following year.
This would add hundreds of pounds to the repayments of millions of homeowners.
Laura Suter, personal finance manager at AJ Bell, said: “The numbers show that homeowners need to be prepared for a big jump in mortgage costs.”
She added: “The rise in mortgage costs will come from rising interest rates from the Bank of England.
“Homeowners need to be aware that it is a question of if, not when, for interest rate hikes now and time is running out with record mortgage rates that we have all become accustomed to.”
What mortgage rates are increasing?
Figures from mortgage broker London & Country show that many providers have raised their rates slightly in recent weeks.
On October 19, Barclays raised rates on its low loan-to-value (LTV) mortgages, which will affect buyers on smaller deposits.
Natwest withdrew its last five-year fixed contract at less than 1% on October 21.
Leeds have also withdrawn a series of fixed deals and are down to less than 1% now.
Nationwide made a number of changes that went into effect on October 27.
He increased a number of rates by 0.05%. A two-year fixed contract with an LTV of 60% is now 0.99% with a charge of £ 1,499.
A five-year LTV set at 75% increased from 0.05% to 1.19% also with a charge of £ 1,499.
According to L&C, on Budget Day Natwest raised the rates on all of its residential mortgages to 60%, 70% and 75% LTV.
HSBC has raised almost all fixed trading to these levels for the second time in a fortnight.
The lender has only one transaction left at less than 1%.
Meanwhile, Virgin has increased rates on fixed LTV contracts to 65% and 75% over two and five years.
Lenders told us that rate changes are part of regular reviews and have nothing to do with yesterday’s budget.
What does rising mortgage rates mean?
Anyone currently under contract with a fixed rate mortgage will not be affected by these changes, but will notice that contracts are considerably more expensive when they end and are re-mortgaged.
AJ Bell has said that someone with a £ 250,000 mortgage who secured earlier this year and came to remortgage in 2023 would see an additional £ 600 added to their annual mortgage fees.
On a £ 450,000 mortgage, annual repayments would increase by £ 1,068.
The changes will also affect first-time buyers.
Suter explained, “First-time buyers are likely to feel the most from rising mortgage interest rates.
“Some have borrowed to their affordability limit to access the property ladder, so they will have additional monthly costs that are harder to swallow.
“First-time buyers also typically have a higher loan-to-value or lower deposit, which means they have more loans on the average property and already have higher mortgage rates. “
What Should I Do About Rising Mortgage Rates?
If you’ve taken out a follow-up mortgage and are worried about the rate hike, you may want to consider switching to a fixed offer while there are still good offers available.
Some lenders also offer ultra-long fixed deals, which will give you certainty over your monthly repayments for 10 years or even longer.
Habito, for example, offers a fixed 40-year offer at 5.1%.
It comes with a hefty fee of £ 1,995, but would give you certainty over your spending for four decades.
You might also consider overpaying your mortgage if you can afford it, to get debt free up front.
Martin Lewis recently urged homeowners to consider remortgage to save thousands of pounds.
But half of the owners have never remortgage because they think it will be too complicated.
The best tips include:
- Understand what is your current mortgage offer
- Find the cheapest deal offered by your current lender
- Compare this offer to the cheapest offers offered by other lenders
- Use online tools like Mortgage Comparison Checkers and Mortgage Calculators from MoneySavingExpert to compare offers
- Check your credit score and if you can afford a new mortgage
- Consider using a mortgage broker
- Check if the lender charges a fee to lock in the best rate – it can range from £ 100 to £ 250, says Martin
- Use your savings to borrow less on your mortgage and pay less per month
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