Homeowners facing £500 increase on mortgage bills!

For the past few weeks, news reports have been blowing up our mobiles and tv screens due to a rate rise that will take place in a couple of months. Now, reports are warning homeowners facing a £500 increase on mortgage bills.

Since the Bank of England announced that the Monitory Policy Committee (MPC) are bringing rates up, banks and other lending societies across the UK have begun pulling out their cheapest deals.

However, that’s just the beginning of bad news.

Financial experts say that homeowners mortgage bills will rise by a hefty amount, as they predict that rates will jump from 0.5% to 1% by the end of the year to keep inflation under control. This will cause mortgage rates to rise by the same amount also.

With that estimate, they were able to work out the average rate of a 2-year fixed mortgage deal – which is currently 2.36% – will increase to 2.86%. This will likely add a minimum of £500 per year to a typical mortgage of £150,000. Experts also say that the average rate of 5-year fixed mortgage deal will increase to 3.36% from 2.86%.

Warnings are going out to borrowers, advising them to take action before their chance to access cheap mortgage deals slips through their fingers.

Banks such as Halifax and Tesco bank have already brought their rates up since the cost of funding mortgages has surged. It was reported that Halifax brought their rates up by 0.5% at the beginning of February this year. Tesco bank followed suit by putting rates up by 0.34 points.

Reports also state the Treasury – a committee that are responsible for developing and executing the government’s public finance policy – are ridding the £108bn Term Funding Scheme that offers cheap cash to banks. This will cause lenders to pay higher interest rates, meaning that cheap homeowner loans will be no more.

Andrew Montlake of Coreco, said that, “more banks will follow with rises in the coming weeks”, meaning that “mortgages rates could rise by up to 0.5% over the next year”. The change in rates will come as a shock, says Montlake, as thousands of homeowners across the UK depend on cheap credit.

WHICH DEAL IS RIGHT FOR YOU?

Getting a mortgage with a fixed rate is recommendable. Whether it’s a 2, 5 or 10 year deal, your monthly repayments will stay the same throughout the fix, no matter how high rates go. You’ll know exactly what you’re paying each month, meaning you can budget around it.

If you’re looking for a short mortgage plan because you are thinking about moving in a few years, then a 2-year fixed rate mortgage deal might be the best option for you. The lowest 2-year deal on the market currently is Sainsbury’s Bank with a fixed rate of 1.19%. However, Sainsbury’s are charging a high fee, so if you’re looking for a low rate plus a low fee, then Yorkshire Building Society’s fixed rate deal of 1.24% might be a better option for you.

However, if you aren’t planning on moving and decide to go for a 2-year fixed rate mortgage, you may find yourself remortgaging once the Bank of England bring the rates up.

The most popular mortgage plan is the 5-year fixed rate deal. They’re a little more expensive than the 2-year fixed rate deal, however, you will have more time to pay off the mortgage. Plus, you’ll breathe easier knowing that your repayments will stay the same throughout the 5 years.

The lowest 5-year deal on the market right now is Principality Building Society’s fixed rate deal of 1.65% for those who pay a 35% deposit – meaning you’ll pay just over £600 a month on a typical mortgage of £150,000. Those looking for a 5-year deal with a 25% deposit can also turn to Principality, as they offer a fixed rate deal of 1.75%. The amount you pay monthly will be similar to those who put in a 35% deposit.

Those concerned about the rate rise may want to look for a mortgage deal with a longer repayment period, such as the 10-year fixed rate plan.

The lowest rate on the market for the 10-year deal at the moment is TSB’s 2.39% deal, meaning you’ll make a monthly repayment around £600. There is also a £995 fee and you’ll need a 40% deposit.

Note: Basik Money are offering a 7-year fixed rate mortgage deal from 2.99% Apr for which you only need a 10% deposit. With rates about to rise, you might want to grab this deal while you can!