Interest rates: More mortgage misery for Scots homeowners

READ MORE: Scots get over £2000-a-year average mortgage payments rise bombshell

The move is yet another blow for Scotland’s 200,000 homeowners on variable rate mortgages, whose bills have ratcheted up in recent months, as well as those already struggling to get onto the property ladder. 

Debt charity StepChange described the rise as a “body blow” to household finances, saying that 17% of its new clients are already in arrears with their mortgage. 

It came as “disturbing” new Scottish Government figures showed the number of Scots living in poverty has reached record levels, with more than 1.1 million adults, children and pensioners affected. 

Consumers are also facing the highest surge in food prices in more than 45 years. 

The Office for National Statistics (ONS) revealed food and non-alcoholic drinks prices rose by 18% year-on-year last month, up from 16.7% in January and the highest since August 1977. 

The average two-year fixed mortgage rate is now 5.32%, with a five-year fix at 5%, according to Moneyfacts. 

This time last year, those mortgage rates were 2.65 % and  2.88% respectively. 

According to figures from trade association UK Finance, the latest hike will typically add £23.71 per month – or more than £284 per year – to the cost of a typical tracker mortgage. 

Borrowers on a standard variable rate (SVR), meanwhile, will see their costs increase by £15.14 per month – or more than £181 per year – on average if the rate hike is passed on by their lender. 

Homeowners end up on SVRs when their initial deal comes to an end and the SVR is set by individual mortgage lenders. UK Finance’s figures are based on average outstanding balances and payments. 

It calculated that, since December 2021, the average tracker mortgage payment on an average home loan of £125,000 will have increased by £393.65 per month – or around £4,724 per year. 

The average SVR will have increased by £251.34 per month, or £3,016 per year, assuming base rate hikes are fully passed on. 

About eight in 10 residential mortgages outstanding are on fixed rates, cushioning homeowners from the immediate impact of base rate hikes, although borrowers may get a shock when their fixed deal ends and it is time to remortgage. 

However, economists offered a glimmer of hope, saying it could be the last in the recent flurry of rises. 

The Bank of England’s governer, Andrew Bailey, has said he is more optimistic that the UK can avoid a recession after being on a “knife edge” last month. 

He gave a surprise upgrade to its forecast for the UK economy, saying it now expects slight growth in the second quarter of the year, having anticipated last month it would decline by 0.4%. It means the country would avoid imminently falling into a recession – which is defined as two consecutive quarters of negative growth. 

He said: “I’m not saying it’s off to the races, let’s be clear, but I am a bit more optimistic,” he said. 

Chancellor Jeremy Hunt said he supports the Bank’s decision to hike rates further as “the sooner we grip inflation, the better for everyone”.  

Mr Hunt announced last week that the cap on energy prices will be extended for a further three months, as part of his first full Budget. 

While the rise in interest rates might seem like good news for savers, experts said that for the time  being at least, the high inflation rate will continue to eat into the value of millions of people’s nest eggs. 

Banks have also been criticised by MPs and others recently for the paltry rates on some popular accounts – particularly instant-access ones.  

Jeremy Hunt 

The Barclays Everyday Saver easy access account offers only 0.55% interest, and Santander Everyday Saver pays 0.6%.  

Almost six in 10 mortgage deals (57%) coming up for renewal in 2023 are at rates below 2%, according to ONS statistics, well below the current rates being offered by lenders. 

The average borrower coming off a two-year fixed rate at the moment will see their rate rise from 2.57% to 5.32% when they come to remortgage. 

Nationwide Building Society pledged to cut some of its new mortgage rates from Friday, despite the hike in the base rate yesterday. 

The building society said it is making reductions of up to 0.45 percentage points across some products, including fixed and variable rates. 

READ MORE: Over 200,000 Scots homeowners hit with new mortgage bombshell

Henry Jordan, director of home at Nationwide Building Society, said: “We regularly review our mortgage rates and these latest cuts are being made across both our fixed and tracker products, meaning all types of borrowers could benefit, whether they are buying their first home, moving to their next or looking to re-mortgage.” 

Nationwide said the new deals include a two-year fixed rate with no fee and a rate of 4.49%.  

The rate has been reduced by 0.45 percentage points and borrowers will need a 40% deposit. A three-year fixed rate is also available at 4.89% with a £999 fee for borrowers with a 10% deposit. The rate will be 0.30 percentage points lower than previously. 

Figures published yesterday show the number of Scots living in poverty has reached its highest for almost 20 years. 

According to Scottish Government data, 250,000 – nearly one in four (24%) – youngsters were living in relative poverty, with this total said to be the equivalent of 10,000 primary school classes of children. 

Consumer group Which? highlighted how renters may feel the impact of the base rate hike on their housing costs, despite not having a mortgage themselves. 

Sam Richardson, Which? Money deputy editor, said: “Higher rates will also have an impact on renters, as buy-to-let landlords will likely pass on increased costs to their tenants. 

He added: “If you are unsure about how you will be able to make monthly repayments, contact 

your landlord or letting agent to see if a different payment plan is available.”