Expect bills to soar as Bank Rates could reach 4.5pc next Year.
On Thursday, the Bank of England will announce the biggest interest rate increase in 33 years. This could bring soaring mortgage prices and a blow to the housing market.
Investors have estimated a 0.75 percentage points increase in the Bank Rate at the Monetary Policy Committee’s announcement.
This would mark the biggest increase since 1989. It would also raise the Bank Rate from 1.75pc up to 2.5pc. Markets expect that the rate will reach 3.75pc by year’s end and peak at 4.5pc by 2023.
If a 0.75-point increase is passed directly onto mortgage rates, then the average rate for a 2-year fixed mortgage will go up from 3.92pc to 4.67pc in August.
According to Hamptons estate agents, this means that a buyer buying a London home would have a monthly mortgage bill of around PS2,240 – £169 less than if they received a mortgage offer in August.
This would mean that they would need to pay an additional £4,056 over the two-year agreement.
The extra cost of buying a vehicle before interest rates rose in December 2021 would be £14.304. An average UK buyer would have to pay £2,208 more over two years if they received their offer in August and £7,800 more if it was December 2021.
The Bank Rate could rise to 3.75pc by December. This would mean that the monthly mortgage bill for an average £543,520 London property is £2,537. That’s a 54pc increase compared with December.
They would have to spend £21,432 more if they were to lock in a mortgage deal for two years. Rates are expected to continue rising and traders anticipate that they will increase even further.
Economists agree that the Bank Rate will rise to 3.5pc by 2023.
Analyst Pantheon Macroeconomics has only forecast a 0.5% increase in Thursday’s transactions. Analysts warn that transactions will continue to drop sharply. As purchasers have less money, the rising mortgage rates are already putting a strain on buyer demand.
According to the Royal Institution of Chartered Surveyors (a professional body), August saw the highest number of new buyer inquiries since April 2020, when the housing markets were shut down in the first lockdown.
August, excluding the 2020 data, saw the largest drop in buyer inquiries since the global financial crisis. This was also before Thursday’s rate increase.
Ross Boyd of Dashly, a website that compares mortgage rates, stated: “A rate hike of 0.75% will send shockwaves through the property market. Add in the effects of high inflation, an economy on the edge and the odds are for a significant slowdown in transaction volumes.
High house prices have not been an asset to first-time buyers. They will be the hardest hit. According to Hamptons, a 0.75 point increase of the Bank Rate would cause the monthly mortgage bill for a typical £243,000.00 first-time home buyer to go up from £1,148 in August, to £1,240 in September.
This is an additional £92 or £2,208 over the two-year period.
The result would be that first-time buyers’ mortgage costs would have risen by 34pc from December. The average monthly mortgage bill for a first-time buyer will rise to £1,402 when the Bank Rate reaches 3.75pc.
This is an additional £478 per month compared to if they received a December mortgage offer. Hampton’s calculations were made for a buyer who had a 25pc deposit and was purchasing a 2-year fixed-rate mortgage.
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