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The Financial Conduct Authority (FCA) has stated that more than 750,000 households are at risk of mortgage default as interest rates rise. However the Government regulator recently set out a number of ways in which they expect mortgage lenders to support borrowers.
Credit app TotallyMoney commissioned Moneycomms to calculate the impact of the Bank of England’s interest rate hike on mortgage borrowers.
The base rate has risen to four percent today, in a bid to tackle soaring inflation – its highest level since the 2008 financial crisis.
For the average UK property costing £270,708 with a 75 percent LTV, a 0.5 percentage point hike means monthly mortgage repayments will increase by another £52.
This means customers will be forking out an extra £430 each month when compared to December 2021 — just before the series of hikes began.
The Bank of England has stated that monthly payments on around four million owner-occupied mortgages are expected to increase over the next year
They have continued to increase rates from a record low of 0.1 percent in December 2021 in its effort to tackle inflation — which decreased slightly in December to 10.5 percent, from 10.7 percent in November.
Borrowers feeling the brunt
Although inflation dropped slightly in December to 10.5 percent, it still remains well above the Bank’s target of two percent.
While rising interest rates mark a good time for savers, the same can’t be said for borrowers.
Following the hike, the average mortgage borrower can expect to pay an extra £52 per month. Those who have been on a variable rate since the start of the series of hikes, they could be paying an extra £430 more per month when compared to December 2021.
Lenders required to support struggling customers
The Government regulator expect mortgage lenders to support borrowers by temporarily reducing their rate, giving them longer to make payments, extending the term of the agreement, and switching to interest only.
Last year, TotallyMoney and PwC found the finances of 8.9million UK adults were teetering on the edge, with a further 20 million finding themselves overlooked and under-served by the financial services industry.
This represents one in two adults and without adequate support, they could find themselves struggling for years to come, with missed payments leaving a mark on credit reports for up to six years.
Alastair Douglas, CEO of TotallyMoney said: “If you’re one of the 750,000 homeowners at risk of defaulting on your mortgage in the next two years you must contact your lender as soon as possible.
“The Financial Conduct Authority recently instructed firms to support borrowers with measures which included allowing customers to make lower repayments, switch to interest-only, or moving to a different rate.
“Missing a payment could impact your ability to access credit for years to come. Not just for big ticket items like loans and mortgages, but also for things like mobile phone contracts and car insurance. Lenders usually check a customer’s credit report during the application process, and the best deals are reserved for those with the best scores.
“At TotallyMoney, we’re on a mission to help everyone move their finances forward. Our free app puts customers in control of their own data so they can manage their money, improve their credit score, and access the best offers.”
Paul Holland, mortgage broker at Henchurch Lane Financial Services did not think the rate should have increased.
He said: “In my opinion, the Bank of England should keep rates on hold at this meeting. Their mandate of slowing inflation was aggressively pursued throughout 2022 with countless consecutive interest hikes.
“This, coupled with the debacle that was the mini-Budget in September, left the market in disarray.
“There have been positive signs coming into 2023 with mortgage rates creeping down, a reduction in inflation and the cost of some of the main drivers of it, like fuel. Skipping an increase at this meeting will restore some much-needed confidence in the market early on in the year.
“If the MPC have to get to four percent or even 4.25 percent then this should come later in the year.”
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