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August 13, 2010    

Return to 2008 mortgage rates to cost £1,800 a year

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by Gill Montia

With a rise in the Bank of England’s (BoE) base rate inevitable at some point in the future, accountancy firm, PricewaterhouseCoopers (PwC), has been assessing the potential effect on UK homeowners of average mortgage interest rates moving back up to 2008 levels.

According to BoE data, the average rate across three common types of mortgages (standard variable rate, base rate tracker and three-year fixed rate) was 6.3% in 2008 and 4.1% in the first half of 2010.

Reversing the 2.2% fall would therefore result in the typical homeowner paying around £34 per week, or £1,800 a year, extra in mortgage payments.

The figure equates to around 3.5% of the total household spending of the 10 million UK households with mortgages, or around £18 billion per annum in aggregate.

In terms of the economy, PwC’s chief economist, John Hawksworth, warns that the consequent squeeze on household budgets would “add to the drag on economic growth from planned tax rises and public spending cuts”.

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