Interest only mortgagers face 70% rise in payments

| July 9, 2007
”Interest

Last week’s increase in the Bank of England’s base rate will leave some homeowners, who are nearing the end of their two-year fixed-rate mortgages, looking at an increase in monthly payments of around 70%.

According to the Council of Mortgage Lenders, approximately one million homeowners have fixed-rate mortgages taken out in 2005, with rates in the region of 4.5%.

Lenders are likely follow the 0.25% rise in the bank rate by increasing their standard variable rates to around 7.75%.

This means that a fixed-rate borrower with a relatively small interest-only mortgage of £100,000, could be paying an addition £300 per month, assuming a 7.75% standard variable rate on a new mortgage.

Monthly payments could rise from £375 to £645 per month for such a borrower and those with repayment mortgages could expect to see monthly payments increase by 35%, from £556 to £755.

Despite the 1.25% increase in the base rate since last August, some analysts are of the view that inflationary pressures could instigate a further rise of 0.25% or even 0.5%.

Borrowers seeking to swap to new fixed-rate terms may be thwarted as swap rates are currently at their highest since 2000, and some lenders are already factoring in not only the recent rise but also one further rise that would take the base rate to 6%.

As a result many fixed-rate mortgages are looking expensive when compared with discounts and tracker products.


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