Bank of England predicted to raise interest rates again

With the Bank of England predicted to raise interest rates by 0.5 percentage points to 4% this Thursday, Credit app TotallyMoney has commissioned Moneycomms to calculate the impact of the expected interest rate hike on mortgage borrowers.

The research found that For the average UK property costing £270,708 with a 75% LTV, a 0.5 percentage point hike means monthly mortgage repayments will increase by another £52. This means customers will be forking out an extra £430 each month when compared to December 2021 —  just before the series of hikes began.

The Bank of England has stated that monthly payments on around 4 million owner-occupied mortgages are expected to increase over the next year. The Financial Conduct Authority (FCA) has stated that more than 750,000 households are at risk of mortgage default as interest rates rise†

Although inflation dropped slightly in December to 10.5%, it still remains well above the Bank’s target of 2%. As such, the Bank of England Monetary Policy Committee (MPC) is expected to hike the interest rate by a further 0.5 percentage points to 4% this Thursday — its highest level since the 2008 financial crisis. While rising interest rates mark a good time for savers, the same can’t be said for borrowers.

Credit card rates are at their highest in 25 years and between October and December 2022, while unsecured personal loan rates are growing at their fastest ever pace. Following this week’s expected hike, the average mortgage borrower can expect to pay an extra £52 per month. Those who have been on a variable rate since the start of the series of hikes, they would be paying an extra £430 more per month when compared to December 2021.

With 750,000 people at risk of defaulting on their mortgage this year, the government regulator recently set out a number of ways in which they expect mortgage lenders to support borrowers. These include temporarily reducing your rate, giving you longer to make payments, extending the term of the agreement, and switching to interest only.

Last year, TotallyMoney and PwC found the finances of 8.9m UK adults were teetering on the edge, with a further 20 million finding themselves overlooked and under-served by the financial services industry#. This represents one in two adults and without adequate support, they could find themselves struggling for years to come, with missed payments leaving a mark on credit reports for up to six years.

Alastair Douglas, CEO of TotallyMoney said “If you’re one of the 750,000 homeowners at risk of defaulting on your mortgage in the next two years you must contact your lender as soon as possible. The Financial Conduct Authority recently instructed firms to support borrowers with measures which included allowing customers to make lower repayments, switch to interest-only, or moving to a different rate.”

“Missing a payment could impact your ability to access credit for years to come. Not just for big ticket items like loans and mortgages, but also for things like mobile phone contracts and car insurance. Lenders usually check a customer’s credit report during the application process, and the best deals are reserved for those with the best scores.”

Andrew Hagger, Personal Finance Expert, Moneycomms.co.uk said “This 10th successive rate hike is unlikely to be the last in 2023 and will inflict further financial pain on borrowers – many of whom are already on their knees and simply unable to absorb any further cost increases.”