Scots receive £200-a-month mortgage payments rise bombshell

The rising interest rates began almost a year-and-a-half ago and are now at their highest level since 2008, making it even more expensive to borrow and pushing banks to lift savings rates.

The central bank has been increasing interest rates since December, 2021 to try and control inflation, which currently stands at over 10%, the highest in 40 years.

The Bank of England said that inflation was at a higher than expected level but was expected to reach as low as 5.1% by the final quarter of this year with energy prices expected to fall.

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It said that typical household energy bills are expected to drop to around £2100-a-year by the fourth quarter of the year. T

hat is only £400 less than the energy price guarantee brought in by the UK Government but still double the amount of the energy price cap set by the regulator Ofgem in the winter of 2020/21.

Worst hit by the interest rate rises are the estimated 115,000 Scottish households on standard variable rate (SVR) mortgages or the 85,000 on tracker loans, which fluctuate with the Bank of England rate.

They saw typical mortgages rise by between £350 and £390 in one fell swoop on Thursday.

Since interest rates began to go up in December, 2021 to try and stem the rise in the cost of living, mortgage payments have gone up by £200-a-month on average, according to analysis.

It is estimated that a further 120,000 households in Scotland whose fixed rate mortgages are set to expire this year are also set to be hit.

They are among the 1.4m households across the UK whose fixed-rate offers are due to end, with 57% of these types of loans at interest rates below 2%, according to official analysis based on Bank of England data.

Some 100,000 fixed-rate mortgage deals were scheduled to end during 2022 in Scotland.

According to analysts Moneyfactscompare.co.uk, the typical two-year fixed rate mortgage rose from 2.34% in December 2021, to 5.26% just before the Bank of England put up the base rate. A five-year fixed-rate mortgage went from 2.64% to 4.97%.

Citizens Advice Scotland social justice spokesman David Hilferty said: “Hundreds of thousands of people are facing a mortgage payment time bomb when it comes to renewal or their tracker rates.

“The cost of living crisis has seen the Bank of England hike interest rates to try and cool the economy – and that has led to lots of people on variable rate mortgages facing higher monthly payments, meanwhile lots of people with fixed rate deals that will expire in the next year are understandably concerned about how much more they could pay and trying to budget for different payments.

“Add in higher energy bills and food prices and people are facing huge cost increases for essential spending - food, heat and shelter.

“That wears down people’s financial resilience to the point where one big bill - the boiler going or the car breaking down - could be absolutely disastrous.

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“There will be a legacy of this crisis. More people in debt, fewer people with adequate savings and higher mortgage payments.

“If people are worried about bills or money they should seek advice.”

According to analysis supported by interest rate data tracked by Moneyfacts, the typical Scots householder with a 25 year term standard variable rate (SVR) repayment mortgage with £100,000 in debt remaining will have seen their annual costs soar by nearly £2400 a year since the base rate rises began in December, last year. Annual repayments would now be estimated at nearly £9000 a year.

Meanwhile, the typical Scots householder with a two year tracker with the same amount of repayment mortgage debt will have seen their annual bills go up by a similar amount a year since December. Annual repayments would rise from nearly £4850 to £7240.

The StepChange Debt Charity warned the interest rise could be a further catalyst for problem debt.

At present, around one in seven mortgage holders (15%) who seek help from StepChange are in arrears on their mortgage, while arrears on other household bills such as gas and electricity remain "alarmingly high".

Vikki Brownridge, chief executive of the charity said: “The steep jump in interest rates we’ve seen over the past 12 months has been a shock to household budgets, compounding financial difficulty for people who are already struggling to make ends meet.

"As time goes on, more mortgage holders will be facing the prospect of a new fixed rate deal or variable rate which will consume a larger proportion of their income, making it increasingly difficult to meet other financial commitments.

“The situation is becoming increasingly precarious for many people and widespread problem debt is a risk, particularly for financially vulnerable households. We would urge firms to be proactive in identifying and communicating with customers who might be falling into difficulty by offering tailored support and signposting to free debt advice.

“For anyone worried about housing costs and their ability to cover payments, it’s important to reach out for help as early as possible."

Rachel Springall,  finance expert at Moneyfacts said the base rate rise was "disappointing"  news for borrowers who have been unable to refinance onto a fixed rate mortgage, and yet another blow to their monthly outgoings amid a cost of living crisis. 

She said inflated house prices and the "relentless impact" of the cost of living crisis will be "taking its toll"  and there may be some concerned about whether this is the right time to take out a mortgage.

She said those aiming to lock into a fixed rate mortgage for peace of mind will find average rates have come down slightly over the past month, but as rates average around 5%, it may still be unaffordable for some.

She said fixed mortgage rates could be unpredictable in the months to come, so some borrowers may even sit tight to wait for cheaper deals to surface.

"Whether fixed rates are destined to remain volatile or not, there is still an incentive for borrowers to fix, as the consecutive base rate rises have pushed the average Standard Variable Rate (SVR) to its highest point since 2007," she said.

"Seeking advice is vital to ensure borrowers can comfortably afford to refinance based on their own individual circumstances. New buyers looking to get their foot onto the property ladder will still be facing a housing supply shortage and their deposits may not stretch far. These borrowers remain vital to keep the mortgage market moving, so hopefully more positive innovative changes will surface to support these buyers."

The Bank’s aim in elevating interest rates is to bring UK inflation down to its two per cent target.

The governor of the Bank of England Andrew Bailey said: "Let me be clear inflation remains too high and it's our job to get it all the way down to 2% target and have it stay there."

He said high food costs meant it was taking longer for inflation to fall than it had expected.

Six months ago the Bank of England was expecting the longest recession on record.

But now Mr Bailey says there will now be “modest but positive growth”.

The SNP said "Scottish families are paying the price for Tory failure" - as interest rates rose.

SNP economy spokesperson Stewart Hosie MP said: The Tories and pro-Brexit Labour Party are making the cost of living worse by imposing cuts and a hard Brexit that's harming the economy.

"With interest rates rising, yet again, households across Scotland are being forced to foot the bill for this Tory mortgage premium, with payments increasing by hundreds of pounds.

"The UK government must deliver urgent support for struggling households - and prevent families falling into arrears through no fault of their own."

Chancellor Jeremy Hunt said: "Although it is good news that the Bank of England is no longer forecasting recession, the interest rate rise will obviously be very disappointing for families with mortgages.

"But unless we tackle rising prices, the cost of living crisis will only carry on."