Rising interest rates and what it means for homeowners

The Bank of England's Monetary Policy Committee has hiked interest rates

The Bank of England's Monetary Policy Committee has hiked interest rates - Credit: Getty Images/iStockphoto

The hike in interest rates is likely to send mortgage bills higher for millions of families and further disrupt the property market, according to a north London agent

The Bank of England announced last week that it will trigger the largest interest rate hike for more than a decade, from a record low of 0.25 per cent to 0.50 per cent.

Andrew Ellinas, director of north London agents Sandfords said: “A 0.25% rise is not going to have a significant impact on the economy as a whole, but it will further depress a falling property market, particularly in prime central London. Currently, the market is flat.”

“As an example, there are two blocks of apartments near our Regent’s Park office that are historically very sought-after and if a property came available we would be swamped with buyers and a sale would be made very quickly. In one of those blocks, in the same month in 2016 there were three apartments on the market and they all sold. This year, there are ten apartments currently available but there are no buyers for them. In the other block, a very similar situation, there was one property on the market in 2016 and in 2017 there are ten that are not selling,” Andrew added.

Various tax changes and the prospect of Brexit is also worsening the situation, making investors and buyers increasingly anxious, according to the north London estate agent.

“With tax changes (increased stamp duty, an extra tax for buy-to-let investors and foreign investors’ tax) and Brexit looming, there is too much uncertainty and buyers, particularly overseas investors, have been put off making big financial commitments.”

The Bank’s recent announcement to increase interest rates came after the key Monetary Policy Committee (MPC) voted 7 to 2 for a hike, which will add around £36 a month to the cost of a typical £300,000 London mortgage.

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This rise will initially only affect the estimated 40 per cent of Britain’s 11 million mortgage holders, who are on variable or tracker rates that move in line with the Bank’s base rate.

But it may soon impact many more borrowers coming to the end of their fixed rate periods, who will need to remortage over the coming months. Major lenders immediately said they would lift their variable and tracker rates in line with the Bank of England.

Borrowers with a £200,000 mortage and paying two per cent interest will see their monthly bills rise by £24 from £848 to £872, adding £288 to their annual bill.

For a £300,000 home loan the rise is £36 a month from £1,272 to £1,308, while for a larger £500,000 mortgage the monthly increase is £60 from £2,120 to £2,180.

Oli Smith, 25, who bought a starter home with his girlfriend in north London in 2016, currently pays £700 a month on a mortgage of £200,000. In June 2018, they will now see their fixed rate mortgage soar from an interest rate of 1.84 per cent to 5.79 per cent.

Oli told the Evening Standard: “We will have to look for a different mortgage provider. We will have no choice – it will be up to six per cent and it is less than a year away.

“It makes me feel scared and anxious because I am not sure I will be able to afford it and young people are under enough pressure as it is. This is an added pressure we can do without.”

He added: “I’m not ready to start a family yet, but I will be soon, and how can you afford to even think about that if you’re paying that much for your mortgage.”