27% increase in mortgage repayment rates coming

Consumers could see the cost of their mortgage rise 27 per cent in the New Year, new research has found.

11:24 21 December 2004

Consumers could see the cost of their mortgage rise 27 per cent in the New Year, new research has found.

This is likely to affect borrowers with annual review mortgages - around 1.5 million people - and those ending their two-year fixed rate contracts - another 600,000 consumers.

Over the last year the Bank of England has increased interest rates four times to a three-year high of 4.75 per cent, 27 per cent higher than their December 2003 levels.

An annual review mortgage will not have taken account of these increases gradually, meaning all of the rate hikes will come into force at once.

For a mortgage of 100,000 those on annual review could find their monthly interest payments rise by 83, equating to 1,000 a year, or more if they are with one of the many lenders who have increased their interest rates by more than the Bank of England base rate, mortgage intermediary Charcol has said predicted.

Ray Boulger, senior technical manager at Charcol, commented: "There are still many borrowers in the UK who have their mortgage structured on an annual review basis.

"This means any interest rate changes over the course of the year are amalgamated and applied to the mortgage at the start of each New Year."

A spokesperson at Capital Economics, Ed Stansfield, said: "The sharp rise in mortgage payments faced by borrowers can only add to the downward pressure on house prices."

To combat the rises and save money, borrowers are now being urged to remortgage, but as Mr Stansfield explains it might not be an option for everyone.

"For a start, many borrowers will face early redemption penalties if they wish to remortgage. In addition, some of the best deals require higher-than-average deposits."

However, either way, rates are unlikely to be as cheap as two years ago, when fixed deals fell to 3.24 per cent.