Interest rates ‘ticking time bomb’ warning as Britons face £510 mortgage payment increase

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Describing the current situation as “a ticking mortgage timebomb” the leader of the Liberal Democrats Sir Ed Davey cited figures from the Office for Budgetary Responsibility’s Budget documents which showed a forecast for mortgage interest payments rising by 13 percent in 2023. The rise would be the highest since the financial crisis and would see a borrower with an average-priced house of £264,244 on a 25 year standard variable rate of 3.26 percent faced with monthly payments going up by £42.47 or £510 over a year. A mortgage holder on a fixed-rate mortgage of 2 percent on the same property would see a rise of £24.90 a month or nearly £300 a year.

The situation is much worse on more expensive homes with someone with £450,000 worth of borrowing on a variable deal seeing their costs rise by £1,608 a year.

Anyone who has managed to take out a low two year fix now will be facing a sharp contrast come 2023.

First time buyers are most likely to be badly hit as many will have borrowed up to their affordability limit and therefore struggle with extra monthly costs.

Summing up the current financial climate Sir Ed said: “British homeowners face the toxic cocktail of interest rate rises, house prices surges, and council tax hikes just around the corner.”

“This ghastly forecast should send a shiver down the Chancellor’s spine.

“The way he brushed off the cost of living crisis in the budget was careless and completely out of touch with the country.

“If he can’t get a grip on this cost of living crisis, how on earth is he going to cope with a mortgage crisis?”

Martin Lewis talks about rising interest rates on mortgages

The first indication of rising mortgage rates will come next week when the Bank of England announce their decision on whether or not to raise interest rates from current rock bottom levels.

It has been widely hinted rises will begin this year.

Earlier this month Bank of England Governor Andrew Bailey said the Bank’s Monetary Policy Committee members would “have to act” to tackle rampant inflation.

The OBR currently predict inflation could reach 4.4 percent next year, potentially even peaking as high as 5 percent.

Head of Investment Analysis at AJ Bell Laith Khalaf said: ” The pressure is now cranking up on the interest rate committee, because not only is inflation already above target, but the Chancellor’s now announced a further round of inflationary policies.”

Betting exchange company Smarkets have also given the odds of a rate rise next week at 45 percent.

Those on tracker deals or first time buyers will likely now be looking to find longer fixed deals to lock in lower repayment costs.

Laura Suter, Head of Personal Finance at AJ Bell said: “In a consistently increasing rates environment, the longer you fix the longer you can lock in today’s low rates.”

“However, homeowners need to be careful when thinking about any long-term fixes.”

“While, a long-term fix will give you certainty over what you’ll pay and you won’t be caught out by any shock increases, the payoff is that you’ll pay a higher interest rate now than for a shorter-term fix – so you need to be fairly confident that rates will rise during that 10 years.”

“But with mortgage rates so low at the moment, there’s never been a better time to get a longer-term fix.”

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A strong sales market has increased mortgage lending according to Foxtons third-quarter report out today.

The figures found mortgage broking revenue up 25 percent driven by increased demand for new purchase mortgages.

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