Pensioner’s mortgage set to soar by £300 a month – ‘just as everything else goes up’
Cost of living: Why Bank of England has increased interest rates
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The Bank of England (BoE) increased its base rate for the sixth time in a row last week from 1.25 percent to 1.75 percent. The increase is set to cause concern for hundreds of thousands of homeowners across the country as they watch their mortgage bills increase each month by hundreds of pounds. Pensioner Maurice Latimer, 78, looks set to see his mortgage bill jump by 76 percent when he remortgages in December.
Maurice is currently on a two-year fixed rate deal at 1.84 percent and has a bill of £401 each month.
When his fixed term expires, his lender has offered him a new fixed rate at 3.24 percent.
This increase means that Maurice’s monthly bill will surge by more than £300 reaching £707 a month.
Maurice told the Telegraph: “We have got to cut back on everything. It is coming just as everything else is going up.”
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He explained that it is hard for him to reduce their energy use further as his wife suffers from Multiple Sclerosis (MS) which means the needs to keep warm.
The combined monthly income for the household current stands at around £1,900.
This is through payments from the state pension and disability support payments.
The £300 increase in their mortgage payments will take up around 16 percent of the household monthly income.
Maurice explained that they don’t really have the option to sell up and move as the house has been equipped to accommodate his wife’s condition.
This includes adjustments for Ms Latimer’s wheelchair as well as lifting aids.
Maurice is further concerned as he knows that the rate is only going to get higher so he knows he has to accept the rate now.
He said he will “lock in 3.24 percent now for three years” as he fears it “will be four percent in a few weeks”.
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The Bank of England is increasing the base rate in an attempt to get a handle on rising inflation which it predicts could reach 13 percent by the end of the year.
Last week’s rise is the highest level the UK has seen since the financial crash of 2008.
According to an analysis by the financial information service Moneyfacts, the average two-year fixed mortgage rate is now 3.95 percent.
This is almost double the 2.08 percent typical rate which was reported in August 2020.
Similarly, the typical five-year fix has now surpassed the four percent mark to reach 4.08 percent. This is up from 2.34 percent which the UK saw in 2020.
Cecilia Mourain, managing director for homebuying at the finance app Moneybox said: “Lenders will hike mortgage rates straight after a Bank of England rate rise, but we’ve seen that typically they will come down again, ever so slightly, in the following weeks as lenders continue to compete for business.’
Mortgage holders on a tracker mortgage see their payments increase immediately when the Base Rate rises, and SVRs can also rise.
According to Moneyfacts, the typical SVR is now at a rate of 5.17 percent.
This means that for someone with a £200,000 mortgage, the rise of 0.5 percent is to add approximately £1,400 onto total repayments over two years.
Experts recommend that if a person has a fixed-deal which is coming to and end in the next three to six months, then they may want to lock in a rate now.
Britons may be able to lock in a new rate today and hold it for six months.
The Bank of England will next meet to vote on the rate rise on September 15, 2022.
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