Mortgage payers warned to brace for ‘painful’ interest rate rise from today

Mortgage payers have been warned to brace for another increase to their repayments from today.

The monetary policy committee of the Bank of England is meeting again today, June 22, to decide whether to increase the base interest rate, which is currently at 4.5 percent.

Many analysts are expecting another increase, particularly after the latest inflation figures came out yesterday, with the rate for the year to May remaining high at 8.7 percent.

The central bank has consistently increased the base rate since December 2021 in efforts to reign in spending and tackle inflation.

People on variable rate mortgages have seen their repayments consistently increase as well and they could go up again if the base rate is increased again.

‌‌READ MORE: Prices still ‘rapidly rising’ as inflation remains at 8.7% in more bad news for Britons

Joseph Calnan, Corporate FX Dealing Manager at Moneycorp, warned there could be a “larger interest rate hike” than predicted, after the new inflation figures.

He said: “Not only did CPI remain sticky despite an expected drop, but worse still, core inflation spiralled to its highest level in over 30 years, reaching 7.1 percent.

“This puts the Bank of England in a bind, and they may have to commit to a tougher, half-point rate interest rate increase to five percent.”

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Speaking about what this means for mortgages, he said: “Multiple further hikes will be especially painful for homeowners who are already facing average two-year fixed mortgage rates of over six percent. Unfortunately, it’s going to be a long and uncomfortable journey.”

People on fixed rate deals who are coming to the end of their term and looking to remortgage may want to factor in the fact their repayments could suddenly increase.

Financial journalist Martin Lewis encouraged people in this week’s Money Saving Expert newsletter to consider overpaying their repayments as a way to reduce their costs overall.

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He said: “The simple rule: if your mortgage rate is higher than you can earn in savings, overpaying adds up.

“After all, £10,000 saved at three percent earns £300 for the year, yet use it to overpay a five percent mortgage and it reduces costs by £500 over the same period.

“Overpaying is effectively tax-free ‘saving’ at the mortgage rate. Yet remember, millions of savers are being ripped off earning diddly-squat.”

A person can find out how much they could save through overpayments using the Mortgage Overpayment Calculator tool on the Money Saving Expert website.

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