Industry experts predict increased mortgage misery for many London homeowners as the Bank of England looks set to raise interest rates again this week. Many believe the central bank will impose a supersized rate hike of 0.75% as it battles soaring inflation. While this is lower than the 1% increase predicted some weeks ago, it will still hugely impact many homeowners’ mortgage repayments.
According to recent reports, homeowners in the capital with a typical tracker mortgage of £300,000 could find themselves paying a massive £420 a month more than they were a year ago. This comes at a terrible time, with the cost of living and energy prices soaring and Christmas just around the corner.
The most significant rate hike in more than three decades
If the central bank does increase the base rate by the expected 0.75%, it will mark the most significant increase in 33 years. The hike will take the base rate up to 3% from its current 2.25%. Those with tracker and variable rate mortgages will immediately feel the impact of the rate increases.
Data shows that before Christmas 2021, the repayment on a £300,000 tracker mortgage would have cost borrowers £1,359 per month. At this stage, the base rate was still at record lows of 0.1%, as it was before the central bank started increasing rates. If the base rate goes up by 0.75% this week, the repayment on the same loan rises to £1,779.
In addition to this significant rate hike, there are also increased taxes on the way. The new Prime Minister, Rishi Sunak, and the chancellor, Jeremy Hunt, are preparing to hike taxes to bolster the public purse. While the Treasury has said that the main burden will be on those better off financially, it will impact everyone.
An official from the Treasury said: “It is going to be rough. The truth is that everybody will need to contribute more in tax if we are to maintain public services. After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone.”
Growing financial worries for households
With outgoings set to be affected in so many ways, the impact on household finances could be huge. Many are already struggling with rocketing energy costs and soaring prices on essentials such as food and petrol. With further mortgage rate increases coupled with tax hikes on top of this, it will inevitably be a challenging period for a lot of households.