With Bank of England interest rates increasing to 0.5% in February1, millions of households may now be feeling the additional squeeze on the cost of living as their monthly mortgage payments rise, according to trade body, UK Finance2.
Furthermore, their findings reveal that one in four mortgage borrowers on variable rate deals will be immediately affected by the rise, and millions more once their existing fixed rate mortgage terms are due for renewal.
The February 2022 interest rate rise, made by the Bank of England increased rates by 0.25% to the current 0.5%. Although sounding a small increase, the change will have an impact for many, especially those already feeling the squeeze with rising energy bills and coping with the after-effects of the Covid-19 pandemic.
The rate increases mean that a homeowner with a £150,000 mortgage would typically have to pay an extra £21 a month, or £252 a year, according to figures from brokers London & Country3.
Rising costs across the board
This adds on to the increasing energy costs, driven by the recent removal of the energy price cap, which means that the average household can expect to see increases of £1,200 a year, according to think-tank Resolution Foundation4. Elsewhere, the rising inflation, which has been the highest in 30 years5 means that we will all see the effects of rising prices across products and services in daily life.
Review your mortgage now
With so much change, it’s a good time to review your mortgage to make sure that you’re not paying any more than you need to.
Those most affected by the changes are homeowners with a variable rate mortgage, linked to interest rates, however those on fixed rate period mortgages may start to see changes over time too. We advise that you get in contact with us to talk through your existing mortgage and let us check that you’re on the most suitable deal for your current circumstances. The Mortgage Depot offers free initial consultations to all its clients, so please contact us today.
1 – Bank of England (2022) Interest rates and Bank Rate. Available at: https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate (Accessed 16th Feb 2022)
2 – UK Finance (2021) How the Bank Rate Affects Mortgage Rates. Available at: https://www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates (Accessed 16th Feb 2022)
3 – Duncan, H. (2022) City experts say interest rates could increase five times this year as Bank of England battles against inflation. Available at: https://www.thisismoney.co.uk/money/markets/article-10454913/Rates-rise-FIVE-times-year-ward-inflation.html (Accessed 16th Feb 2022)
4 – Resolution Foundation (2022) 2022 Set to be the Year of the Squeeze. Available at: https://www.resolutionfoundation.org/press-releases/2022-set-to-be-the-year-of-the-squeeze-as-wages-stall-and-families-face-a-1200-hit-from-next-april-as-energy-bills-and-taxes-rise/ (Accessed 16th Feb 2022)
5 – Giles, C. (2022) UK Inflation Jumps to highest level in 30 years. Available at: https://www.ft.com/content/9188e191-4c1c-4968-a3af-9a43f086de6b (Accessed 16th Feb 2022)