What does the UK interest rate increase signify for you?

Once again, the Bank of England has increased interest rates by 0.25%. As a result, the base rate now stands at 4.25%, marking the 11th surge since December 2021. How will this impact your finances?

"What will be the impact on mortgage payments?"

Thursday's action has dealt another hard hit to around 2.2 million individuals who rely on a variable rate mortgage. As a result, their monthly payments have been consistently increased.

Around 50% of them have opted to have a rate that tracks the base or they have a deal with a discount. The remaining half are charged the common variable rate (SVR) by their lender.

If you have a tracker mortgage, your payments will increase soon since it is directly tied to the base rate. For instance, if you have a mortgage with an interest rate of 5%, and the rate increases to 5.25%, your monthly payment will go up by £21. This means that if you have a repayment mortgage of £150,000 with 20 years left, your monthly payment will increase from £990 to £1,011.

Just last June, this individual had to pay £776 every month towards their mortgage. This means that in just nine months, their mortgage payment has increased by 30%, assuming they've had the same agreement.

Naturally, individuals with larger mortgages will see higher figures. If the aforementioned mortgage is raised to £500,000, the payment will increase by £69, going from £3,301 to £3,370.

The lender has the authority to modify the SVRs; however, they usually increase, but not always by the complete 0.25 points. A few lenders may need some time to reveal their strategies.

The typical standard variable rate (SVR) has surpassed 7%, marking the first instance since October of 2008, as reported by Moneyfacts. Hence, individuals currently holding an SVR may benefit from switching to a more cost-effective alternative.

The majority of UK mortgages, which is more than 75%, are fixed-rate loans and amount to over 6 million. These individuals are protected until their agreement finishes, with some agreements lasting for years and others set to end within the upcoming weeks or months.

What are the latest updates on new mortgage options?

The search for a new fixed-rate mortgage has been a bumpy ride lately, regardless of whether one is a first-time homebuyer or a homeowner seeking to renew an expiring agreement.

The cost of new fixes has been increasing steadily since interest rates began to rise, but it spiked significantly following Kwasi Kwarteng's failed mini-budget in September. As of late October, the average interest rate for new two-year fixed-rate mortgages had skyrocketed to 6.65%.

Ever since, loan providers have slowly been lowering the price of their new stable rates (the cost for these deals is typically based on money market “swap rates”). Consequently, the median new two-year fixed rate was at 5.31% on the 22nd of March based on data from the website Moneyfactscompare.co.uk. The median new five-year fix rate has gone below 5%, standing at 4.96% on the same day.

Nonetheless, there are some amazing deals currently on offer that are significantly more affordable. These deals are particularly attractive for individuals who possess substantial equity in their property or have the means to provide a large deposit. If you're looking to secure a five-year fixed mortgage today, some options start as low as three.

You could get your hands on recently launched 2-year fixes at Lloyds Bank from Thursday, starting at 4.26% if you’re planning to remortgage. Lloyds Bank also had 5-year fixes at 3.89% up for grabs. In addition, other banks such as Halifax, HSBC, and NatWest were providing 5-year fixes at slightly less than 4%.

According to Karen Noye, an expert in mortgages from the company Quilter that manages wealth, the possibility of lower new fixed rates is high. This will likely happen if the swap rates remain steady, and if lenders continue to compete fiercely to attract more business.

The head honcho of SPF Private Clients, Mark Harris, expressed that potential borrowers may feel inclined to hold out for even lower rates. However, this strategy poses a risk, as interest rates could potentially stay stable or even increase. It's important to note that attempting to forecast interest rates can be an unwise and risky play.

What if I'm already having difficulties with payments?

Newly released data from UK Finance indicates that in the last quarter of 2022, 75,170 homeowners were behind on their mortgage payments, a 1% increase from the prior quarter.

The situation regarding home repossessions can differ depending on the source of information and its analysis. According to UK Finance, there were 500 mortgaged properties taken into possession by homeowners in the last quarter of 2022. This was reported to be a 29% decrease in comparison to the preceding quarter.

The Ministry of Justice for England and Wales has just released new statistics, which indicate a substantial rise in home foreclosures. According to the data, there were 733 mortgage repossessions in the last quarter of 2021, marking a 134% increase from the corresponding period in the previous year.

It can be difficult to draw comparisons to previous time frames since there was a temporary prohibition on taking away homes during the pandemic. This led to a mere 10 instances where homes were repossessed between April 2020 and March 2021.

It's important to keep in mind that during the beginning of 2009, after the financial crash of 2007-08, there were over 9,000 repossessions. However, the current situation is not the same. Experts have noted that it typically takes around two years to repossess a property and this is only done as a final option.

Is a housing market crash on the horizon?

A significant factor that influences property prices is the amount that people can acquire through loans. Thus, if the costs rise, it will greatly affect the market. However, it's worth mentioning that fixed-rate deals have recently been decreasing in value, and this trend may persist in the upcoming months.

During the past few months, some significant indicators have indicated a decrease in prices. However, in recent times, there have been indications that property dealings, which survived the Brexit chaos and the initial phase of the pandemic, may be more durable than earlier estimates.

The Halifax recently reported that the typical cost of a home in the UK went up by 1.1% in February, following a 0.2% increase in January. In addition, Rightmove mentioned that the mean asking price for a property has gone up by close to £3,000, which is equivalent to a 0.8% hike, during the current month.

According to numerous specialists, the situation differs depending on the region, which makes it challenging to make universal evaluations and projections.

According to Myron Jobson, who is a well-experienced personal finance analyst at interactive investor's website, the spring season is usually a bustling period for the real estate industry in the UK. He added that this season would be the true measure of the durability of property prices.

What is the deal with credit cards and loans?

Anticipate an increase in the interest rates for your credit cards and personal loans if you're a new applicant. Keep in mind that most personal loans without collateral have a set interest rate. This means that if you've already taken out a personal loan, your monthly payment will remain the same.

The Bank of England announced recently that the mean rate of interest charged on credit cards rose to 19.9% in January. This is an increase from the rate of 18.96% recorded in September last year. Although credit card rates can vary, they are usually not directly tied to the base rate.

In January, the Bank confirmed that the mean interest rate on fresh personal loans given to people surged to 8.35%. Moreover, the usual rate for overdrawing money went up nearly to 21%.

But isn't it even better news for savers?

Absolutely correct, this implies an added increase in the rates of savings, which have been ascending for quite some time.

Naturally, there is no typical savings account that can beat inflation, which is currently at 10.4%. Sadly, this means that the worth of millions of individuals' saved funds will gradually diminish. It seems that, for now, inflation will persistently take a toll on people's savings.

Recently, some MPs and individuals have criticized banks for offering low interest rates on certain popular accounts, such as instant-access accounts. For example, the Barclays Everyday Saver account has an interest rate of only 0.55%, and Santander Everyday Saver pays just 0.6%. However, there are several easy-access savings accounts that offer more than a 3% interest rate, as reported by Moneyfactscompare.co.uk.

At present, savings bonds that lock in your interest rate for five years are offering a maximum return of 4.6%. This is slightly lower compared to the previous offer of 4.9% around Christmas time.