Homeowners to see mortgage payments jump next year
According to the Bank of England, four million households will have more expensive mortgages next year
Millions of homeowners with variable rate mortgages will face a New Year financial hangover when their mortgage payments jump again next month.
The Bank of England’s Monetary Policy Committee (MPC) this month raised interest rates to 3.50%, the ninth consecutive time it has increased rates since December last year. The last time the base rate was over 3% was in October 2008, at the start of the financial crisis.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The Bank of England has unwrapped another unwelcome present of an interest rate rise just before Christmas, inflicting fresh cost-of-living pain on borrowers. The rate rise means millions more households will be dealing with more precarious finances next year, with this latest rate rise set to cause another wobble, particularly for those paying off credit cards, on variable mortgage deals or those wanting to find a new fixed rate offer.”
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According to the Bank of England, four million households will have more expensive mortgages next year and two million will have higher payments by the end of 2025. Rate rises over the last year mean that someone with a £200,000 tracker mortgage could be paying as much as an extra £326 per month compared to December last year, meaning their annual costs will have jumped by nearly £4,000.
Lewis Shaw, founder of Teesside-based mortgage broker, Riverside Mortgages said: “Anyone on a base rate tracker will be written to by their current lender explaining the change in the monthly payments, which will take effect from next month. Anyone still on a fixed rate doesn't need to worry as their fixed product currently protects them. Mortgage holders sat on standard variable rates could notice a change; however, that is down to each lender.”
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Unfortunately it may not be the end of rate rises either, with further hikes expected next year in a bid to tame inflation. Rate rises not only make life more challenging for those who already own their homes, but also for those who may be looking to buy for the first time, or to move up the property ladder.
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Alice Guy, personal Finance Editor, interactive investor, said: “It’s true that mortgage rates have been higher in the past, but the problem is that house prices are now at their most unaffordable level since Victorian times. Someone earning the average salary would now need to pay 8.5 times their salary to buy the average house, compared with around 5 times in the 1970s.”
One of the biggest issues facing those who are trying to buy but who might only be able to afford a small deposit is that house prices are falling, with Halifax predicting that 2023 will see prices drop by 8%. This means that homebuyers risk ending up in a position of negative equity, whereby they owe more on their mortgage than the property is worth.
If you’re worried about being about to afford higher mortgage payments in the New Year, or are concerned about falling into negative equity, talk to your lender as soon as possible. They might be prepared to offer you a payment holiday, so that your payments are suspended for a set period of time.
Karen Noye, mortgage expert at Quilter, said: “You may also want to look into government schemes and assistance programs that may be able to help you. For example, the government's Support for Mortgage Interest (SMI) scheme provides financial assistance to help cover the interest on your mortgage if you are on a low income. You may also want to talk to a mortgage adviser or your lender and explore the possibility of refinancing your mortgage to get a lower interest rate or longer repayment term. This can help reduce your monthly payments and make them more manageable.”