Credit, Collections & Insolvency News
Ahead of The Bank of England’s next interest rate move, TotallyMoney and Moneycomms calculate the cost of the two most likely interest rate scenarios and the impact on borrowers with a variable rate mortgage.
The research has found that 5.2 million mortgages will have been exposed to changes in interest rates from the beginning of July 2022 to the end of June 2024. During the same period, household incomes are expected to have fallen by 10%.
8.9m adults exhibit signs of financial fragility, struggling to cover spend on everyday essentials (e.g. groceries, bills) and that 356,000 mortgage borrowers could face payment difficulties as a result.
TotallyMoney says that with inflation slowing, and the banking sector feeling the pressure, many are left wondering what the Bank of England’s next move on interest rates might be. Here are the two most likely options:
A rate rise of 0.25 percentage points to 4.25%
For the average UK property costing £270,708 on a variable rate and with a 75% LTV, monthly mortgage repayments will increase by £26. When compared to December 2021, this means repayments could be £456 more each month.cFor a £150k property, this would represent an additional £18 per month, or a cumulative increase of £345 in monthly repaymentscFor a 400k property, this would represent an additional £48 on people’s monthly repayments, or cumulative increase of £919 since December 2021.
Pressing pause on interest rate increases
This would mean that for the average UK property, customers on a variable rate deal would still be paying an extra £430* each month when compared to December 2021. For a property costing £150k, mortgage payments are £321 per month more expensive than December 2021, while for a £400k property, repayments are £856 more expensive§.Any interest rate hike would signal the 11th consecutive increase, from a record low of 0.1% in December 2021. This series of hikes means that 5.2 million mortgages will have been impacted by June 2024. Coupled with a drop in real income, the FCA has estimated that 356,000 mortgage borrowers could face payment difficulties.
Recently, the regulator set out a number of ways in which they expect mortgage lenders to support borrowers. These include temporarily reducing your rate, giving customers more time to make payments, extending the term of the agreement, and switching to interest only.
Alastair Douglas, CEO of TotallyMoney said “The Bank of England’s rampage on interest rates has pushed people’s finances to the limit, and an estimated 356,000 mortgage borrowers are expected to be facing repayment difficulties by the end of June next year.”
“While it’s past its peak, inflation remains at sky high levels. Four in ten households are spending less on food shopping and essentials¶, and they’ll be in for a fresh shock next month when suppliers hike water, council tax and telecom bills among others.”
Andrew Hagger, Personal Finance Expert, Moneycomms.co.uk said “It appears that UK interest rates may have finally peaked in this current cycle as the Government banks on inflation falling sharply throughout the remainder of 2023. But the current high rates are of little comfort to consumers struggling to make ends meet and particularly those facing an additional huge payment shock when they come to renew their fixed rate mortgage in the coming months.”
