As we head into winter, more than 350,000 families in the UK are having to prepare for an impending financial crisis. They are coming to the end of their low interest long term fixed-rate mortgage arrangements. There’s a perfectly reasonable explanation for that—they all got really good rates five years ago. They may be facing much steeper costs very soon due to major lenders raising interest rates last month.
In August, the Bank of England reduced the base rate to 4%. Yet lenders were still willing to push up their own fixed mortgage spreads. The alert from Nationwide Building Society came after the lender announced increases of 0.2 percentage points on most of its fixed-rate mortgage products nationwide. Halifax and HSBC were not far behind, raising the price of their offerings in the last week.
Nous chief executive Greg Marsh said these changes would have a profound impact.
“Hundreds of thousands of homeowners are in for an unpleasant shock this winter. The era of ultra-cheap mortgages is over. For these households, it’s leaving them thousands of pounds a year worse off.” – Greg Marsh
The good news is that we’re still dealing with small increases—typically only a few tenths of a percentage point at most each time. For borrowers, these seemingly small increases result in much larger monthly payments. For instance, on a £500,000 mortgage, the increased rate would mean an additional £833 per month in mortgage payments. This £9,000 increase hits those with larger loans the hardest.
Hina Bhudia, partner at Knight Frank Finance, said the increase trend as at Q3 is a sign of the wider market.
“That’s feeding through into mortgage pricing: what started as isolated increases from a handful of lenders has, over the past week, become a wider round of rate hikes.” – Hina Bhudia
This spiking of mortgage costs couldn’t come at a worse time, as most households currently face escalating costs of living. Water and council tax bills have increased this year, and energy prices are about to go up again in October. As a result, the overall financial burden on homeowners is poised to increase.
These factors have joined together to make many of us worried about household finances. Tens of millions of Americans are continuing to make the shift from their old, low-rate deals to new, higher-priced accommodations. The overall mood among financial analysts indicates that homeowners better prepare for a long and painful winter.