Alert for families on variable mortgages
The Bank of England has warned that millions of households face mortgage misery in 2011 because they have become vulnerable to higher interest rates.In its twice yearly financial stability report, the Bank warns that growing numbers of homeowners are at risk because they have moved off fixed rate mortgages and opted for variable rates as their fixed rate deals have expired.
Two thirds of the country’s 12 million outstanding mortgages are now on variable rate deals. This means that their interest rates ‘float’ with the Bank’s base rate which is currently held at 0.5% An increase in rates from 0.5% to 1.0% would increase the cost of an average £150,000 mortgage by £43 per month or £516 per year. The Bank is worried because many months of rock bottom rates have tempted millions of families to switch to variable rates so increasing their vulnerability to interest rate rises.
The Confederation of British Industry believes that rates – currently at a record low of 0.5% will hit 1.25% by the end of 2011 and 2.75% by the end of 2012 if the forecasts prove to be accurate.An increase in the Bank of England base rates to 2.75% would increase the average payment on a £150,000 mortgage by £202 per month, equivalent to £2,424 per year.