The cost-of-living crisis in the UK continues to deepen with inflation reaching a 30-year high of 5.4%.

As a result, for the first time since June 2004, the Bank of England has decided to increase interest rates to 0.5% in a back-to-back change following December’s interest rate increase to 0.25% from 0.1%.

So, it goes without saying that some mortgage rates are going to increase again…

How much will my mortgage go up by?

It is highly unlikely that mortgage lenders will ignore the 0.25% increase of interest rates and not reflect it in their interest rates to borrowers.

As a result, if you have a variable rate mortgage then your monthly repayments will be going up (if they haven’t already).

According to UK Finance calculations, the further rate increase could add roughly £26 per month to the typical tracker mortgage repayment.

It is also likely for base rates in the UK to continue increasing throughout the year, capping at 1.5% by the end of 2022. If this happens, monthly mortgage payments could have an extra £129 per month added on.

Paul Broadhead, a representative of the Building Society Association (BSA) said:

“Given the rising cost of living, including the increase in energy price cap […] and the Tax hikes coming in April, the bank rate rise will be unwelcome to many.

“The advice to anyone worried about their ability to pay their mortgage, particularly on top of the energy and food price rises, is to get in touch with their lender early.”

Around three-quarters of residential mortgages are on a fixed-rate mortgage meaning that they are protected from the 0.25% increase for as long as their current policy is active.

However, after their fixed-rate policy deal ends, they will then be able to choose whether to remortgage to another deal or opt-in to their lender’s SVR (Standard Variable Rate) Mortgage which will most likely increase their mortgage repayments significantly.

Currently, more than 1 million mortgages in the UK are SVR mortgages, and their rates are individually set by each mortgage lender.
According to calculations from Moneyfacts, if the increased base rate is mirrored on an average lender’s SVR mortgage, then some customers could face £680+ added to their repayment over 2-years (based on a £200,000 mortgage).

But why are interest rates rising?

The Bank of England is increasing interest rates in an attempt to battle the inflation figures that we are currently seeing in England.

The aim is to bring inflation back down to its 2% target that has been exceeded due to the knock-on effect of the Covid-19 Omicron variant which hit the country hard over the Christmas and New Year period.

This also comes after Governor Andrew Bailey recently told MPs that there are signs that inflation pressures could last into the second half of 2023.

Laith Khalaf, Head of Investment Analysis at AJ Bell states that:

“The Bank of England cannot control the major factors that will push inflation up in the immediate future such as global energy prices or elevated shipping cost.

“But, a February hike would help persuade the market that the Bank really means business, and help to stave off embedded inflationary expectations that could spark a dreaded wage-price spiral.”

He also mentioned that the sudden or quick rate Rises would be a shock to many borrowers.
Chancellor Rishi Sunak may also be under pressure with the Office for Budget Responsibility warning that each 1% rise in rates will cost the UK an extra £23 billion in interest payments on its huge debt pile.

Coffey Brooks are a team of Independent Financial and Mortgage Advisers based in Clacton-On-Sea, Essex and are directly authorised and regulated by the Financial Conduct Authority.