More than a million homeowners are trapped in a “remortgage lottery” caused by rising interest rates, experts said yesterday.
The dilemma affects around 1.3 million people nearing the end of fixed-rate deals, or those who chose variable rates in the hope repayments would come down.
Chancellor Jeremy Hunt backed the Bank of England in raising base rates further yesterday, and said he would do whatever it takes to get inflation down.
Markets expect this will mean a base rate peak of 5.5 percent. Nationwide responded immediately, increasing mortgage rates for new borrowing from yesterday.
It said the rate increases of up to 0.45 percentage points only affected customers taking out a new mortgage deal.
The increase would cost borrowers an extra £900 a year or £75 a month on a typical £200,000 mortgage.
Rising rates will put further pressure on house prices. Nationwide reported the biggest drop since July 2009 last month, with the average sale price 3.1 percent lower than last year. Sarah Coles, head of personal finance at experts Hargreaves Lansdown, said: “This year we face a remortgage lottery.
“The losers are those whose fixed deals run out by the end of the year. They must remortgage and with the Bank of England rate rising their interest repayments will go higher. It is horribly unfair, because those who remortgage this year face significantly higher rates.
“We estimate the rate rises will impose a hit on household finances that’s equivalent to an 80 per cent hike in their energy bills. The only good news is that the market may have over-reacted and the interest rate peak may not be as high as 5.5 percent.
“We hope this is in fact the case and interest rates will not rise as far as expected but, either way, the industry is expecting to see interest rates falling again by about this time next year.
“Hopefully that offers a glimmer of hope to hard-pressed homeowners who are having to negotiate new mortgage deals this year.” Analysts expect interest rates to begin falling again from spring next year.
Lloyds, Virgin Money and Halifax all announced small mortgage rate rises on Thursday, with more big lenders expected to do the same in the coming days. Virgin Money increased its rates by up to 0.12 percentage points, while Lloyds and Halifax increased rates by up to 0.2 points.
Earlier this week, Office for National Statistics figures showed that inflation slowed to 8.7 pe cent in April, higher than the 8.2 percent analysts expected.
Which? money expert Reena Sewraz said: “People on a variable rate deal such as a tracker mortgage would have seen an immediate impact on monthly repayments after the Bank of England rate rise.
“Following the latest inflation figures earlier this week, several lenders have raised their rates, which could have a serious financial impact on homeowners who need to remortgage.
“It will mean that mortgages are a much bigger financial commitment for first-time buyers, meaning they will have to save even more to get on the property ladder. Some could even be priced out of the market.
“Which? research found an estimated 700,000 households missed housing payments in April and this hike risks pushing even more people into housing arrears.”
Luke Hickmore, investment director at asset manager Abrdn, said: “With higher mortgage rates and still high inflation it is going to be increasingly hard to avoid a recession.
“I don’t think it will be a really hard recession but we will feel it and people’s incomes are going to come under a lot of pressure from those higher mortgage rates.”
A Nationwide spokesman said: “In the current economic environment, swap rates have continued to fluctuate and, more recently, increase, leading to rate rises across the market. This will ensure our mortgage rates remain sustainable.”
Nationwide recently launched a fairer share bond paying 4.75 percent, which is available to all the society’s 16 million members.
Financial information website Moneyfacts said that it had seen some mortgage product withdrawals as well as rate increases
this week.
