The credit app is warning borrowers they may face ‘significantly higher’ mortgage repayments if the Bank of England (BoE) hikes rates further.
Currently the base rate is at 0.75% but with another meeting of the BoE’s decision makers this week, expert predictions suggest interest rates could move up another 0.25% to 1%.
And, according to TotallyMoney’s calculations, a rise of 1% above the 0.1% at which base rate was sitting for most of 2021, would increase mortgage payments by £99 per month or £1,188 per year for a 75% loan-to-value (LTV) mortgage on the average UK property costing £270,708.
In London, the research revealed, this increases to £191 per month or £2,292 per year for a 75% LTV mortgage on the average London property costing £519,934.
Am I protected from rate rises on a fixed mortgage?
These rises, if applied, will only apply to borrowers on variable mortgages – such as trackers or standard variable rate (SVR) deals. Those homeowners on fixed rates will only start to be exposed to any rises once their deals come to an end and it’s time to remortgage.
TotallyMoney said its analysis had found one in four mortgage customers currently had no protection against interest rate increases and were already facing higher payments.
This would increase as fixed-rate deals came to an end and customers were moved onto standard variable rate mortgages
Alastair Douglas, CEO of TotallyMoney, said: “As the Bank of England increases the base rate to ease inflationary pressures, the two million homes on variable-rate and tracker mortgages will see their household finances squeezed even more.
“And the situation isn’t going to get much better for those nearing the end of their current deals. They have a choice of facing the more expensive SVR or having to switch to a new, and more expensive fixed-rate product.”
What can mortgage borrowers to do reduce the pressure of rate increases?
He added: “Customers feeling the squeeze from the increased cost of living should consider cutting back on using expensive credit lines such as overdrafts, and move interest-bearing credit card balances to a 0% offer.
“By reducing the interest being paid, customers can repay their debts quicker, or use the money saved to cover other costs.”
What will happen to interest rates this week?
Experts are predicting yet another base rate rise will take place this week with Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, raising concerns a rise this week could be detrimental to many borrowers as it comes during times of extreme financial pressure.
She said: “Mortgage rates continue to rise, and have hit a five-year high (according to Moneyfacts). The market is pricing in another Bank of England rate rise [this] week – and a bigger one this time – which could push buyers to their limits.”
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