Mortgage bills are set to rocket for five million homeowners across the UK, according to the Bank of England Financial Policy Committee (FPC). They are set to see their mortgage repayments rise by hundreds of pounds by the end of 2028.
Rising rates and Middle East tensions
The increase comes as mortgage rates continue to rise amid renewed tensions in the Middle East. Recent strikes on oil tankers in the Red Sea have heightened concerns over global energy supplies, with the central bank now forecasting one million extra homeowners to face higher borrowing costs than it predicted in December. It was previously expected that four million would be hit, but this number has now reached five million.
Current mortgage rates
The average rate on a new two-year fixed deal is 5.59%, according to financial information service Moneyfacts. Although it has risen consistently in recent days, it remains below the Iran war peak of 5.9% in April. The average rate on a five-year fixed deal is 5.61%.
For someone taking out a £250,000 mortgage over 25 years and based on a typical two-year fixed mortgage of 5.59%, monthly payments would amount to around £1,549. By comparison, under Moneyfacts' pre-war average rate of 4.85% in February 2022, monthly repayments stood at £1,440 - a difference of over £100 a month.
Impact of oil prices
Oil prices hit $100 a barrel for the first time since May on Thursday (July 23). This has caused concerns about rising inflation and dashed hopes of a reduction of the bank's base interest rate, which has stood at 3.75% since last December.
A number of lenders, including NatWest, HSBC, Barclays and Lloyds, increased their borrowing rates earlier this week. Santander also increased rates for homebuyers by up to 0.3 percentage points and raised rates for those remortgaging.
Expert advice
Sarah Tucker, a mortgage expert from Homeowners Alliance, said: "In light of the fact that even more people are going to be affected by rate increases on their remortgage, it is more important than ever that people are organised and seek advice as early as possible, and certainly up to six months before their current deal ends."
She added: "One thing I like to constantly remind people of is that your adviser should be able to offer you something called a ‘price match’ and that means you can secure a rate up six months in advance with your adviser and their team regularly checking the rate for you and switching it if rates get better. If rates do continue to increase, that way you have your rate locked in and you know the worst case scenario. Your rate switch can happen all the way up to completion so please always make sure you ask your adviser if they offer that service as standard. So don’t try to hedge the market yourself and wait for the ‘right time’. The right time is six months before so you’re nice and organised and you can then hedge the market while having a secure rate in place."
Rachel Springall, finance expert at Moneyfacts, added: "The prolonged tensions in the Middle East have hit the swap rate market, in turn driving up mortgage costs, as lenders monitor swap rates to help them price fixed-rate deals. It will be incredibly frustrating for borrowers to see rates rise back up to where they were a month ago. The positive progress over recent weeks now feels all but lost, but what the market needs is a period of stability. Lenders have resorted to pulling some deals temporarily to reconsider their pricing plans, with over 100 deals withdrawn from sale in the last week alone."
