Mortgage warning as repayments could hit £1,490 a month

Mortgage repayments could soon go up again as the base interest rate is set to go up again next week.

Analysts are predicting the Bank of England will continue to increase the base rate, which could peak at six percent or above.

Rajan Lakhani, money expert at smart money app Plum, warned even if rates peak at six percent, this will “put a lot of pressure” on mortgage borrowers.

He told Express.co.uk: “Lenders add premiums on top of the base rate to their deals to make money, so you’re likely to be paying above six percent.

“For example, someone with a tracker mortgage of £225,000 and an LTV of 75 percent would see their monthly payments go up from £1,354 a month (at the current rate of 5.29 percent) to £1,490 (at a future rate of 6.29 percent).”

Experts at Forbes Advisor are predicting the base rate could rise from the current five percent to 5.25 percent or even 5.5 percent next week.

They said: “This will have an immediate impact on variable rate mortgages, perhaps pushing them beyond the eight percent mark, with those on tracker deals also feeling the ill effects straight away.

“Those currently on fixed deals will not feel the effect until it comes time to remortgage, but if that is any time soon, they’ll be looking at rates heading towards seven percent for a two-year fix, although they might get closer to five percent if they’re prepared to fix for five years.”

Iwona Hovenko, real estate analyst at Bloomberg Intelligence, also warned those who are remortgaging should prepare to see their repayments suddenly increase.

Looking at figures from Lloyds Bank, she said borrowers who have remortgaged since October have paid on average £185 more a month while those remortgaging in the second half of 2023 could pay an extra £390 a month.

However, she also said mortgage rates are starting to fall. She explained: “Several of the largest lenders announcing rate cuts this week, although mortgage rates nevertheless remain elevated.

“Looking ahead, we might see inflation slowing more materially later this year, following a steep drop in energy prices.”

She said if inflation continues to fall, mortgage rates could “moderate more meaningfully” later this year but it may be a long time before there is a return to two percent rates.

Emma Jones, founder of When The Bank Says No and Alder Rose Mortgage Services, is also optimistic for the months ahead.

She said: “As we approach the end of the year, the situation should steady, and there might be only minimal adjustments, if any, to the Bank of England rate.

“We maintain a positive outlook that if inflation remains on a downward trend, there could be potential rate reductions in the year 2024.”

Looking at what mortgage borrowers can do to plan ahead, Mr Lakhani urged people whose costs will increase to make sure they can afford the increase.

He said: “Cut spending where you can by cancelling unused subscriptions, switching to cheaper products, or by using comparison sites to save money on your bills.

“Make the most of the high interest environment by finding a savings account with a good return – Plum now offers up to 4.21 percent AER on savings.”

He encouraged those who can’t afford their repayments to approach their lender to come up with a new payment plan.

One option is to switch to an interest-only mortgage, which may reduce the monthly payments, but a borrower will end up paying more overall.

Ms Hovenko said: “In order to prepare for the higher rates, homeowners could try and make overpayments or extend their mortgage term, as well as try to reduce some of their non-essential spending.”

Ms Jones spoke about what factors homeowners need to consider when looking to remortgage.

She said: “First, compare interest rates offered by different lenders. It’s also important to be aware of any fees and charges associated with the remortgage.

“This could include arrangement fees, legal fees, and early repayment charges. You may also want to check your credit score as it plays a significant role in mortgage approval and the interest rate you receive.”

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