The Bank of England has owed thousands of homeowners and first-time buyers mortgages with the biggest increase in interest rates in more than 30 years.
The bank’s Monetary Policy Committee (MPC) ordered an increase in its benchmark lending rate to 3 per cent from 2.25 per cent, the highest level since October 2008.
It said the hike was needed to rein in rising inflation, which hit a 40-year high of 10.1 per cent in September.
The Bank of England’s prime interest rate has not risen so rapidly since November 1989, when it rose from 13.75 percent to 14.875 percent. An even larger increase was briefly imposed on Black Wednesday in September 1992, but was rescinded by then-Chancellor Norman Lamont before the end of the day.
Governor Andrew Bailey said the consequences would be worse later if the bank “doesn’t act coercively now,” although he acknowledged that the rate hike would “have a real impact on people’s lives” and added: “It’s a hard road ahead.” “
Thursday’s move would add about £115 to a homeowner’s monthly bills, including a typical £300,000 tracker home loan, with rates commensurate with the Bank of England and 20 years outstanding for payment.
Standard revealed earlier this week that monthly bills for owners with mortgages of this size have now risen from £420 to £1,359 from £1,779 last year.
For borrowers who have taken on even higher levels of debt, the increase will be even more severe. For a homeowner with a loan of £500,000 – not uncommon in London – Thursday’s increase would add £191 a month to monthly bills, raising them to £2,964.
Homeowners on fixed deals will be shielded for now, but have to re-mortgage them at much higher rates when their fixed terms expire.
Two-year fixed averages stood at 6.46 per cent on Thursday, while five-year deals stood at 6.3 per cent, according to the latest data from Moneyfacts.
Chancellor Jeremy Hunt said “the most important thing the British government can do right now is to restore stability, settle our public finances, and slash debt so that interest rate hikes can be kept as low as possible” but acknowledged that “There is no easy option”.
Shadow Chancellor Rachel Reeves said: “Families now face more anxiety after high mortgages and months of economic chaos.
“Today’s recession warning shows how the 12-year tenure of the Tory government has undermined the foundations of our economy, and we have suffered shocks, from crisis to crisis with falling living standards and low growth. And.
“As Chancellor and now Prime Minister, Sunak must face his mistakes, which this Tory government has led us into a vicious cycle of stalemate.
“The working people are paying the price for Tory’s failure. Britain deserves more than this.
“Labor will give us the economic responsibility we need, and will bring forward a proper plan for development across our country, investing in renewable energy, nuclear power and jobs in insulating homes; setting trade rates; and a modern industrial strategy. moving forward.”
Paula Higgins, CEO of the campaign group HomeOwners Alliance, said: “Few homeowners will avoid the shock caused by rocket rates. The shocking mortgage rate trend spells a disappointing winter for homeowners who spend between two and five fixed rates.” Those on the end of deals come with mortgage costs as well as spiraling living costs. These high rates are also bad news for the 2 million people who are on variable rate mortgages, who want to quickly increase their mortgage payments. Will see.
The rise came as London homeowners were given a bleak warning on Thursday that property prices would fall faster in the capital next year than anywhere else in the country as higher mortgage rates send the property market slumping.
According to new forecasts from Agents Seville, prices outside the most exclusive addresses in central London will drop by 12.5 percent next year in 2024, before the recovery begins in 2025.
However, even by 2027, prices will not be able to fully regain the lost ground and will still be 1.7 percent below current levels.
The bank’s 0.75 per cent hike came a day after the US Federal Reserve raised its key interest rate by the same amount.