The Bank of England has hiked interest rates by 0.5 percentage points – pushing the benchmark rate to 4.75% up from 5% – representing the thirteenth consecutive rise since December 2021.
This comes after official data on Wednesday showed that the annual rate of inflation was stuck at 8.7% in May.
The rise will be felt by borrowers as mortgage and loan costs are set to be higher. More than 1.4 million people on tracker and variable mortgage deals will see an immediate increase in their monthly payments – the increase meaning those on a typical tracker mortgage will now pay £24 more a month while standard variable rate mortgages face a £15 increase.
The rise will be even stronger for the 1.5 million households with fixed mortgage deals set to expire this year. Homeowners who hold a fixed-rate mortgage will not witness a change immediately in their monthly payments, however those looking to remortgage face a sharp rise in repayments once they move on to a new deal.
Chairman of Cornerstone Group International, David Hannah said, “We’ve witnessed most of the major lenders withdrawing or increasing rates on their mortgage products in preparation for today’s interest rate announcement which is creating a dire situation for both existing and prospective homeowners across the country.
“Due to today’s decision from the Bank of England to raise interest rates to 5%, homeowners coming off fixed-rate deals and moving straight into a six percent mortgage are going to be unable to afford them. That’s going to lead to a load of repossessions and forced sales which is not good news. Fundamentally it’s going to shatter confidence in the market.
“Such an environment will lead to a slowdown in property sales, as well as a potential decline in property prices, impacting both existing homeowners and those aspiring to join the property ladder. Today’s announcement is also set to affect first-time buyers who may now be unable to make a first step onto the housing ladder due to unaffordable mortgage rates. The rise will also have a knock-on effect on the rental market too – it has already been suffering from a lack of supply, and now, with a growing number of would-be buyers in need of a place to live, this is going to be exacerbated further. The result of this is that rental prices and competition will likely increase at a time when people are already struggling.
“I think what should be considered is having a maximum cap on mortgage payments for homeowners, with the remaining amount of increased interest being added on to the balance of the mortgage. By doing this, more homeowners will be able to afford their monthly payments and it will mean more people and families can keep their homes. Everybody’s just about managing at the moment and if you look at the underlying factors that created this inflationary cycle, they’re not in the control of consumers.”