People with a mortgage that directly tracks the Bank of England’s base rate will see their monthly payments rise by a further £73, usually following Thursday’s rate hike.
This is the latest in a series of base rate increases, meaning that since December last year the tracker’s average monthly mortgage payment will have risen by a total of £284.17, according to figures from the trade association UK Finance.
That’s an increase of around £3,410 a year, which tracker mortgage holders typically need to find within their budgets.
The increase in the base rate from 2.25% to 3% on Thursday will mean a monthly increase of £73.49 – or around £880 extra per year – for the average holder of a tracker mortgage.
Just under one in 10 residential mortgages in progress (9%) is a tracker and about four in five (78%) are fixed rate transactions.
The average standard variable rate (SVR) mortgage will meanwhile increase by £46.22 per month, according to figures from UK Finance, if a borrower’s lender passes on the base rate increase in full.
SVRs are set individually by lenders, and borrowers often end up sitting on them when their initial agreement comes to an end.
The average monthly SVR cost for a borrower has increased by £178.70 in total since December, assuming base rate increases are fully passed on.
Bank of England figures released earlier this week showed mortgage approvals for home purchases fell significantly to 66,800 in September from 74,400 in August.
Base rate hikes aren’t the only factor used by lenders to price their mortgages.
Market volatility following the mini-budget led to a spike in mortgage rates offered by lenders, and many products were pulled from sale.
A recent Office for National Statistics (ONS) survey found that 48% of mortgage holders said they were worried about changes in interest rates on their mortgage.
The lowest rates of the past are long gone
The increased affordability of mortgages will also affect the housing market.
Savills released a forecast on Thursday suggesting that average house prices in Britain could fall by 10% next year, before starting to recover from 2024 as expected interest rates and affordability pressures are attenuating.
While fixed rate mortgage holders are shielded from the immediate effects of the base rate hike, many could experience payment shock when they eventually break their agreement, with around 1.8 million fixed agreements that should be completed next year.
Alex Maddox, Head of Capital Markets and Digital at Kensington Mortgages, said: “Today’s result will hit households, homeowners and potential buyers hard.”
Sarah Thompson, managing director of Mortgage Scout, said: “Consulting with a mortgage broker would be a good idea if you’re ready to commit to a home, as they can help you find the best deal for you.”
Tomer Aboody, director of property lender MT Finance, said: “Rising inflation, coupled with the disastrous mini-budget, means that this rate hike has always been there. Borrowers must come to terms with the new normal of higher interest rates – the low rates of the past are long gone.
Brian Murphy, head of loans at the Mortgage Advice Bureau, said: “The industry is expected to see an upward trend in defaults on mortgage payments in the months ahead, and so we urge anyone afraid of having difficulty with mortgage payments to go straight to their mortgage lender for advice.