Interest rate news: Rise could add £ 687 a year to mortgages – but fees can be avoided | Personal Finances | Finance


Rishi Sunak slammed by Halligan for debt to the Bank of England analysts have calculated that if the Bank of England increases the base rate from 0.1% to 0.5%, people could end up paying an additional £ 57.25 per month, or the equivalent of £ 687 per year. If the rate goes up to 0.25%, people will be stung an additional £ 17.02 per month, meaning they will end up paying £ 204.24 more than they currently would over a year.

They based their assessment on a standard borrower with a 25-year £ 200,000 mortgage on a standard 4.41% variable rate mortgage.

However, if borrowers opted for a fixed rate mortgage, many could end up saving, they said.

A borrower who changes their mortgage from the current average SVR to a two-year fixed rate mortgage at an average rate of 2.25% could see their payments reduced to around £ 872.26 per month.

This would cut their mortgage spending by around £ 229.21 per month – a whopping £ 2,750.52 per year.

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Bank of England chief Andrew Bailey could raise base rate to control inflation (Image: Getty)

Chancellor Rishi Sunak

Chancellor Rishi Sunak (Image: Getty)

The news emerged as there was widespread speculation that the Bank of England’s Monetary Policy Committee could increase the rate by 0.1% to control rising inflation.

There are rumors that the bank could raise the rate to 0.25% next month before another hike to 0.5% in March.

Commenting on the speculation, Eleanor Williams of Moneyfacts, said: “As the possibility of a potential increase in interest rates looms, borrowers who have a fixed rate mortgage would be protected from an increase in their monthly repayments because their rates are locked in for the term. initial of their current agreement.

“However, on the other hand, those who currently benefit from a variable rate mortgage – such as a base rate tracker, a discounted variable rate, or their lender’s Standard Variable Rate (SVR) – are likely to be the first. feel the impact of increasing everything, because their monthly mortgage payments could well increase if lenders pass some or all of the base rate hike on to them.

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Later mortgages

Later mortgages (Image: Express)

“Rate competition has seen average month-to-month fixed mortgage rates drop and various providers have recently launched attention-grabbing mortgage rates under 1% showing their ability to offer low prices. and compete for business while we stay in low interest. the interest rate environment, which means this might be a good time for eligible borrowers to consider a new mortgage contract.

“The average SVR is currently 4.41%, almost double the average two-year fixed rate for all 2.25% LTVs they might be able to get – meaning some borrowers who now commit to a new mortgage could not only reduce their spending by around £ 200 per month, but also protect themselves from any future rate hikes, giving them a stable monthly payment to budget as we go. let’s move on.

Ms Williams spoke shortly after prominent independent economist Julian Jessop said it became “increasingly likely” that interest rates could skyrocket up to five times “very soon “.

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Independent economist Julian Jessop

Independent economist Julian Jessop (Image: Parliament Television)

He said the Bank of England’s monetary policy committee could raise its base rate from the current record low of 0.1% to as low as 0.5%.

However, the ‘optimistic Brexit’ academic warned people not to panic as it would still represent a rate below the 0.75% in place before the pandemic struck early last year.

He tweeted: “(It) looks more and more likely that the #BoE (Bank of England) will raise interest rates much sooner than expected, but don’t panic…

“A rise from 0.1% to 0.25% (or even 0.5%) would still leave nominal rates close to historic lows (and still below the pre-Covid level of 0.75%).

“Context is important.

The head of the Bank of England, Andrew Bailey

The head of the Bank of England, Andrew Bailey (Image: Getty)

“The economic context and budgetary choices will have a much greater impact on public finances than any probable change in short-term rates.

“And higher inflation at least keeps real rates low.

“Credibility is also important.

“Other CBs (Central Banks) are already increasing their rates or reducing their asset purchases.

“Some members of the Monetary Policy Committee (MPC) might be happy to let the current QE (quantitative easing) program expire and not announce any more for 2022, but a small rate hike would send a stronger message.”

He later added: “Consumer confidence is down in part because of inflationary fears. The Bank must respond.

Quantitative Easing is a practice where banks print money for the purpose of stimulating economic growth. Its downside is that it can cause inflation to increase.

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