Interest rates hiked again as cost of living rises
Nearly two million homeowners will face higher mortgage repayments after the Bank Rate was increased for the second time in three months.
The Bank of England has increased interest rates for the second time in three months.
The Bank Rate – the official cost of borrowing – has gone up from 0.25% to 0.5%.
The move means around two million homeowners with variable rate mortgages will see their monthly repayments rise.
The change will add around £24 a month to repayments on a £200,000 mortgage.
The increase comes as consumers are already facing pressure on their budgets as a result of higher food prices and rising energy costs, while National Insurance contributions are due to be increased in April.
Energy bills are set to rise by 54% this year to an average of £1,971, after energy regulator Ofgem increased the cap on the prices that energy companies can charge.
The Bank of England warned that families faced the biggest fall in disposable income since records began three decades ago.
Why are interest rates going up?
Inflation hit a 30-year high in December of 5.4%.
The Bank’s Monetary Policy Committee (MPC) uses changes to interest rates as a way of controlling inflation.
It is supposed to keep inflation – which measures the rate at which things we buy get more expensive – at 2%, as measured by the Consumer Prices Index.
But inflation is currently more than double this level and it is expected to rise further to peak at more than 7% in April.
The MPC is made up of 12 members who all vote on whether or not interest rates should be changed.
At the latest meeting, four members voted to raise the Bank Rate to 0.75%, suggesting there are further interest rate hikes to come.
What does it mean for me?
You will only be impacted by the interest rate change if you are on a mortgage that moves up and down in line with changes to the Bank Rate.
These are mortgages such as tracker deals or standard variable rates, which you revert to when a fixed term deal comes to an end.
Around 850,000 homeowners are currently on tracker mortgages, while 1.1 million are on standard variable rate ones, according to mortgage trade body UK Finance.
People with a £200,000 mortgage will see their repayments increase by around £24 per month following the latest hike, increasing their monthly payments by just under £40 once the previous increase is factored in.
Around 74% of mortgage holders are on fixed rate deals, and they will not see any change to their monthly repayments.
This is because under fixed rate mortgages the interest rate you pay remains the same for the length of the deal, which is usually two to five years.
What should I do now?
If you are currently on a fixed rate mortgage, you don’t need to worry about higher interested rates until your deal ends.
If you are on a tracker mortgage and want to protect yourself from further interest rate rises, you may want to switch to a fixed rate deal.
But before you do this, check to make sure you will not incur any penalties for ending your deal early.
If you are on a standard variable rate you can switch to a new mortgage at any time.
The good news is that although mortgage rates have risen during the past month as lenders anticipated the latest rate hike, competitive deals are still available.
The average cost of a two-year fixed rate mortgage is now 2.44%, while a five-year fixed rate deal is 2.71%, and a 10-year fixed rate mortgage is only slightly more expensive at an average of 2.85%.
This compares with an average rate of 4.46% for people on standard variable rates.
If you think you may struggle to keep up with your mortgage repayments after the latest interest rate rise, it is important to contact your lender as soon as possible.
There are a number of steps lenders can take to help you, including granting you a temporary payment holiday or putting you on to an interest-only mortgage for a short time.
But options become much more limited if you have already missed a payment.
Key takeaways
- The Bank of England has increased interest rates for the second time in three months, raising them by 0.25% to 0.5%
- The move means around two million homeowners with variable rate mortgages will see their monthly repayments rise
- The increase will add around £24 a month to repayments for someone with a £200,000 mortgage
Levelling Up: no fault evictions for renters to end
The Government has unveiled plans for a dramatic shake up of the private rented sector with its Levelling Up white paper. Find out what's in store for renters and more.
Landlords will no longer be able to kick renters out of their homes for no reason under new plans announced by the Government.
Section 21 ‘no fault’ evictions, under which renters have to vacate a property after a notice period even if they’ve done nothing wrong, will be abolished as part of a number of reforms included in the Government’s Levelling Up White Paper.
Other improvements include ensuring all homes in the private rented sector meet a minimum standard for the first time ever, and halving the number of poor-quality rental homes across the country.
The Government also plans to explore introducing a landlords register, pledging to crack down on rogue landlords.
Using fines and bans, it wants to stop repeat offenders leaving renters living in unacceptable conditions.
Why is this happening?
The measures are part of the government’s Levelling Up White Paper, which aims to shift government focus and resources to communities that have lagged behind the rest of the country in terms of prosperity.
The paper sets out 12 Missions to Level Up the UK by 2030, ranging from increasing employment and productivity, to improving public transport and 5G access while offering skills training.
One of these missions is to ensure renters have a secure path to homeownership, and to improve their accommodation in the meantime.
Who does it affect?
The white paper is good news for renters in both the private and social housing sectors.
Under the Decent Homes Standard, which currently only applies to social housing, private rented homes will have to be in a reasonable state of repair, have reasonably modern kitchens and bathrooms, and have effective insulation and heating.
Meanwhile, the government has also committed to building more genuinely affordable social homes.
In addition, it will deliver on the commitments it made following the Grenfell fire tragedy in 2017, such as ensuring homes are safe, complaints are dealt with promptly and that renters’ voices are heard, through a new Social Housing Regulation Bill.
But it is important to note that beyond setting the broad target to meet the 12 missions by 2030, no timeline has been announced for the individual measures included in the white paper.
What else is happening?
The white paper also included other measures that will impact housing.
A new £1.5 billion Levelling Up Home Building Fund will be launched to provide loans to small and medium-sized developers.
The Government also said much of its £1.8 billion brownfield funding will be diverted away from building homes in London and the South East to transforming brownfield sites in the North and Midlands.
Homes England will also spearhead efforts to regenerate 20 town and city centres into 'beautiful communities'.
Key takeaways
- Section 21 ‘no fault’ evictions will be abolished as part of a number of reforms included in the Government’s Levelling Up White Paper
- All homes in the private rented sector will have to meet a minimum standard for the first time
- The Government will crack down on rogue landlords through fines and bans