What the recent interest rate rise means for your mortgage repayments
On 11th May the Bank of England increased its rates by another 0.25% to 5.5%, meaning that six million homeowners in Britain will face bigger monthly payments for their mortgages.
Britain has 11.6 million mortgage borrowers and of these less than half are currently on fixed rates. The rest will see their repayments rise as lenders make changes to their Standard Variable Rates (SVRs).
For bank rate tracker mortgages, the repayments will simply rise in line with the 0.25% increase, but for those whose mortgages offer a discounted rate on SVRs, they will have to wait for their bank’s announcement to see how their payments will change.
The Council of Mortgage Lenders‘ average mortgage rate was 5.48% in March 2007.
Some examples of how a 0.25% increase can affect your repayments (figures based on a change from 5.48% to 5.73%):
For a £30,000 mortgage on a capital repayment the increase is £4.57 a month.
For a £30,000 interest-only mortgage the increase is £6.25.
For a £50,000 mortgage on a capital repayment the increase is £7.61 a month.
For a £50,000 interest-only mortgage the increase is £10.42.
For a £80,000 mortgage on a capital repayment the increase is £12.18 a month.
For a £80,000 interest-only mortgage the increase is £16.67.
For a £120,000 mortgage on a capital repayment the increase is £18.27 a month.
For a £120,000 interest-only mortgage the increase is £25.
For a £170,000 mortgage on a capital repayment the increase is £25.89 a month.
For a £170,000 interest-only mortgage the increase is £35.42.
For a £230,000 mortgage on a capital repayment the increase is £35.02 a month.
For a £230,000 interest-only mortgage the increase is £47.92.
For a £250,000 mortgage on a capital repayment the increase is £38.07 a month.
For a £250,000 interest-only mortgage the increase is £52.08.
Nationwide Building Society was quickest on the draw with an increase of 0.25% to 6.99% on its base mortgage rate, effective from 1 June.
Portman Building Society increased its SVR by 0.25% to 7.49%.
Royal Bank of Scotland raised its One Account rate by 0.25% to 6.95%.
Other banks and building societies followed suit, all with an increase of 0.25%, but with the end rates ranging from 6.60% (First Active) to 7.59% (Bradford & Bingley, Northern Rock, West Bromwich).
Most SVR mortgage rates now sit between 7.4% and 7.6%.
Despite the seemingly across-the-board rises, many homeowners will be looking for new mortgage deals, and they should probably act quickly to get the best deal possible. Future interest rate rises will push fixed rate deals higher, increase fees and cut discounts on offer.
Two pieces of information may have an impact on future Bank of England rates. On 15 May the rate of inflation slowed down to 2.8% in April (from 3.3% in March); this would help interest rates to stay down. On the same The Royal Institution of Chartered Surveyors’ latest survey showed that house prices were still on an upward trend in April – the eighteenth consecutive monthly rise; this may cause the Bank to think of another rate increase.
Tom Smith
26th May 2007
