Mortgage payments to rise by £1,380 a year

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Interest rates have risen dramatically in recent months which has had a particular effect on mortgage payments for millions of people. Many Britons are stuck between the rising cost of renewing a fixed rate mortgage or moving on to a variable rate alternative; with some facing payment rises of £1,380 annually.

The Bank of England has raised the base rate ten consecutive times in the last year and it is now sitting at four percent.

While this may be of some good news to savers, homeowners and people in debt have seen their repayment rates shoot up.

Experts are warning that over one million households are due to renew their fixed rate this year at a time when the market is less than hospitable.

At the same time, variable rate mortgages are no longer viewed as an affordable option due to changes in the wider economy.

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Danni Hewson, AJ Bell’s financial analyst, outlined the tough decision facing many mortgage holders in the coming months.

She explained: “Whilst rates have fallen since the mini-Budget threw a grenade into the works, those people will find that whatever choice they make their monthly payments will be substantially higher.

“The question many homeowners have been asking is whether they should hold off re-fixing until rates come down and instead go for a variable rate or a tracker mortgage.

“Every situation will be different, so the best course of action will be to talk to a broker to get the right advice for you.”

Under a fixed rate mortgage, homeowners are locked into paying the same amount for their property for usually a three to five year period.

Variable rate mortgages are subject to changes in the wider market, so are therefore impacted by the consistent hikes to the base rate.

The latest figures from the Office for National Statistics (ONS) suggest that more than 1.4 million households with a fixed rate mortgage are set to renew in the next year.

Furthermore, 1.6 million people on a tracker or variable rate will experience a rate hike to their mortgage payments almost immediately.

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For homeowners borrowing £250,000, a 0.5 percent rise means an extra £72 a month in costs.

Those with £400,000 of borrowing will see their mortgage payments increase to an extra £115 a month or £1,380 a year.

The latter figure is based on the current mortgage rate of 4.5 percent, on a repayment with a 25-year term.

The finance expert highlighted that the property market is becoming even more “unafforable” due to the constant rate hikes.

Ms Hewson added: “It’s important to remember that the increase is the tenth in a row and for many mortgage holders the financial shock has been or will be acute.

“With thousands of pounds a year being added onto a typical mortgage, there will be some who are finding their home has become unaffordable.

“There are options people can consider, like extending the term of the mortgage, moving to interest-only or using an offset mortgage.

“Whilst these may cost more in the long term, they could provide a lifeline during the current cost of living crisis.”

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