Homeowners are facing the biggest rise in mortgage payments since the 2008 Financial Crisis after decades of rock-bottom rates, according to official data.

The Office for Budget Responsibility (OBR), the government’s independent forecaster, gave its predictions for the UK economy as part of last week’s Autumn Budget report, including that the Bank of England will increase the base interest rate from 0.1% to 0.75% by the end of 2023. Meanwhile, inflation could hit 5% in 2022, as the cost of living continues to rise.

The Bank of England’s Monetary Policy Committee voted on Thursday to leave the base rate unchanged at 0.1%, but hinted that a rise could be imminent.

Kevin Brown, spokesman for Scottish Friendly, said; “We expect the Bank to make incremental hikes rather than introducing a swift, sharp increase. Nonetheless, the result could hurt some borrowers, particularly homeowners who aren’t on fixed rate mortgage details. They should start thinking now about how they may cope with potentially, considerably higher mortgage costs.” Read more in our article What can you do to prepare for an interest rate rise?

The biggest rise in mortgage rates is expected in 2023, when the cost of paying a mortgage could increase by 13.1%. Homeowners with a £250,000 two-year fixed-rate mortgage at 2.06%, for example, would see their repayments rise by about £600 a year when they came to remortgage in 2023, according to investment provider AJ Bell.

Despite the base rate remaining unchanged at present, the cost of the cheapest mortgage deals has already increased by a third in the space of a week, according to analysis by data firm Defaqto, potentially adding hundreds of pounds in interest over a year.

Some lenders have faced criticism for already hiking rates in the wake of Rishi Sunak’s Budget. Halifax, for example, increased rates on some of its mortgage deals by 0.2 of a percentage point from 1 November, while Barclays increased the rates on its mortgage deals by up to 0.35 of a percentage point, and is no longer offering any deals below 1%. NatWest and TSB increased rates by 0.15 and 0.3 of a percentage point, and HSBC is also hiking rates across dozens of deals.

Nationwide has withdrawn its tracker rates, and increased the cost of fixed-rate deals by up to 0.35 of a percentage point. Skipton Building Society has pulled its three-year rates, and is expected to be replacing these with deals at higher rates.

What can you do about rising rates?

News of increasing rates will come as a further blow to households who are already battling soaring energy and food bills, with warnings of a tough winter ahead. According to mortgage brokers, you cannot now find a five-year fixed-rate mortgage below 1%, although the top two-year fixes still stand around 1%.

Brokers are urging borrowers to secure low fixed-rate mortgage deals while they are still on offer. David Hollingworth, from broker L&C, says: “I would expect that the rounds of rate changes we’ve seen could continue over the near term, so if you are within six months of your mortgage deal ending you are well-placed to start reviewing what’s on offer. The fact that the base rate hasn’t yet risen gives you time to take stock and take some action – as lenders start to gradually raise rates. There are still really competitive deals around.”

If you’re coming to the end of your mortgage deal, or languishing on your lender’s standard variable rate (SVR) you would be wise to start searching for a new deal. Rates are only expected to increase over the coming years.

In the worst case scenario, the OBR predicts the Bank of England could increase rates to 3.5% at their highest, but only if inflation breaches 5% over the next few years.

Any increase in the Bank of England base rate will be most likely followed by mortgage rate rises, although the increase in the amount you can earn on any savings could increase too, if providers choose to pass this on.

Remortgaging for a better deal

The remortgage process typically takes between four and eight weeks, so it’s usually best to start your search at least three months before your current deal expires to avoid going onto your lender’s expensive standard variable rate. It is possible to lock in a new mortgage deal between three and six months before you want it to begin, so this gives you plenty of time to plan ahead and take advantage of today’s competitive rates.

Doing a straightforward ‘product transfer’, by switching to a new deal with your existing lender, is likely to be the quickest and easiest way to secure a better deal – but bear in mind that it is unlikely to be the best deal out there.

There are a number of high quality mortgage advisors in the market, but if you’re looking for somewhere to start, we’ve partnered with an experienced mortgage advisor to offer fee free advice to Rest Less members on standard and buy-to-let mortgages. Find out more or book a free call back here.

Bear in mind that if your circumstances are complex or you’re worried about being accepted for a mortgage, it may be worth speaking to a specialist mortgage broker. These can come with an additional fee, but may be more suited to borrowers that might require a tailored approach.

Have you remortgaged and saved money recently or are you planning to do so in the next few months? Do you worry about how you’ll afford your mortgage when rates rise? If so, we’d be interested in hearing from you. Join the discussion on the Rest Less community forum, or leave a comment below.

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