Could Mortgage Payers Struggle After Rising Interest Rates?

7:00 PM August 4, 2022

Households have been hit with a double whammy of bad news as mortgage payments are set to rise and the UK economy is set to plunge.

Homeowners have been warned to prepare for higher mortgage payments as the Bank of England‘s base rate rises by half a percent.

Bank of England forecasters added to the gloom by predicting that the UK economy would officially enter recession in the last three months of 2022 and the economy is expected to contract throughout 2023.

It came on the same day that Ofgem confirmed the price cap would change every three months, instead of six, in a bid to prevent more energy companies from going bankrupt over the winter – raising fears of hikes more frequent awards.

Joanne Leek of the Suffolk Building Society said most mortgage rates did not automatically follow the Bank of England rate – but she expected a fee adjustment in the very near future.

Joanne Leek of the Suffolk Building Society
– Credit: Simply C Photography/Cherry Beesley

A £150,000 25-year mortgage at 2% would currently cost £758.83 a month. If the rate increased from 0.5% to 2.5%, this would represent a monthly cost of £794.85, an increase of £36.02.

This would hit family bills on top of rising energy prices – and the rising cost of living. The Bank of England also predicts that inflation could reach 13% next year.

Ms Leek said it was not possible to say how much higher rates would rise – but at present all the pressure was on the upside on rates.

Debt services expect news about mortgages and energy bills to push more people into financial trouble.

Reverend Nic Stuchfield, of the Suffolk Coastal Debt Centre, said the center was already receiving more and more inquiries from people who were struggling to make ends meet and the threat of a rising energy bill would cause other problems.

Rev Nic Stuchfield, Chairman of the Suffolk Coastal Debt Center

Nic Stuchfield said households were facing problems on many fronts
– Credit: Nic Stuchfield

He said: “The news today is very worrying as an increasing number of people are finding it very difficult to make ends meet, especially with rising energy bills.

“We’ve only had a few inquiries so far from people with mortgages – but if rates rise significantly over the next few months, I expect we’ll get many more. .”

He added that while the news about interest rates, inflation and a year of negative growth was grim, one bright spot was that there were still plenty of vacancies in the region – and the increases in levels minimum wage had been good for those who were lowest. pay rate.

Bank of England Governor Andrew Bailey during the Bank of England Financial Stability Representative

Bank of England Governor Andrew Bailey during the Bank of England Financial Stability Report press conference, at the Bank of England.
– Credit: PA

However, the pressure from so many quarters meant that many people could really struggle even if they were working.

Suffolk businesses were also concerned about interest rate hikes.

Paul Simon, head of public affairs and strategic communications at the Suffolk Chamber of Commerce, said: “What is so frustrating about this news is that once again the Bank of England’s projections on inflation had to be revised upwards and those on growth downwards.

Paul Simon of the Suffolk Chamber

Paul Simon of the Suffolk Chamber
– Credit: Nicky West Photography/Suffolk Chamber

“Had they taken the manifest concerns of the Suffolk Chamber and its members – and those of others – seriously, they would have appreciated the depth of the storm to come more than 18 months ago – and would have reacted more proactive and perhaps less damaging in terms of interest. rate increases.

“As things stand, businesses are now facing the consequences of the sixth interest rate hike in as many months.

“Given the recent declines in activity noted in our quarterly business surveys – cash flow down, turnover down, profitability down – we are today very concerned about the impact on future indicators of business growth, including investment and recruitment plans.

“The Suffolk Chamber reiterates our long-standing call for an immediate program of business-friendly tax reforms, including temporary VAT and fuel duty cuts, a cap on energy price increases for small businesses and a reversal of the recent untimely increase in NI Employer Contributions.

“Suffolk businesses are resilient and imaginative, but they are not working miracles and need the government to lighten the load as they face the turbulence predicted for the next two years.”

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