As the Bank of England raised interest rates by 0.25 percentage points to 5.25 per cent on Thursday, many wondered how much harder household budgets would be hit.
The UK's mortgage market is more complex and fluid than, for example, that of the US. The vast majority of mortgages in the UK are fixed for either two or five years, while in the US, rates can be the same for 30 years.
It means UK households get to shop around for the best deals with a certain regularity. It also means that budgets can be quickly stretched when the Bank of England pushes interest rates higher over a short period.
Those on tracker mortgages – which move according to the Bank of England's base rate – will from Thursday be paying an average of £23.71 more per month, or almost £285 per year, according to figures from trade association UK Finance.
For homeowners on standard variable rate mortgages, the average payment could increase by £15.14 per month or nearly £182 per year.
Lenders of SVRs can, and usually do, follow base rate movements, although some will offer discounts.
The Bank of England's interest rate rise on Thursday was the 14th in the current cycle, which started in December 2021. Back then, interest rates were 0.25 per cent. Today, they stand at 5.25 per cent.
Crunch all these numbers and it means that average monthly payments will have increased by £488.50 for those on tracker deals and, assuming base rate rises have been fully passed on, £311.90 for SVRs.
That means an average annual increase of £5,862 for homeowners on tracker mortgages and £3,742.80 for SVR customers.
But all this will have passed by the majority of mortgage holders who are on fixed-rate deals.
Nearly eight in 20 mortgage holders in the UK are on two or five-year fixed-rate mortgages, which have risen substantially in popularity over the past 20 years.
Back at the start of December 2021, the average two-year fixed-rate mortgage was 2.34 per cent.
For example, if you had taken out a two-year fixed-rate mortgage in March 2022, you would probably have secured a deal at 2.65 per cent. When that deal expires in a little more than six months, a deal to replace it could have rates in excess of 5 per cent, meaning a serious and overnight extra hit to your household budget.
About 800,000 fixed-rate deals are ending in the second half of 2023 and 1.6 million deals are due to end in 2024, according to UK Finance.
“Those who have already fixed on to a new mortgage rate in the last few months will be facing significantly higher monthly payments, while many landlords have already passed on higher debt servicing costs to their tenants, making the private rented sector increasingly unaffordable to renters on low and middle incomes,” said Richard Lane, director of external affairs at StepChange Debt Charity.
But there is a geographical split across the UK as well. In southern England, house prices, and therefore mortgages, have been higher and therefore a percentage increase in rates has more of a monthly impact on bills.
“Higher mortgage rates hit harder in higher value markets in southern England, where a larger deposit and income are required to buy with a mortgage,” said Richard Donnell, executive director of research at property website Zoopla.
“In contrast, in the north of England and Scotland, house prices are still rising as the impact of higher mortgage rates is less pronounced.”
Nonetheless, a big increase in default and arrears is not expected in the mortgage market. UK Finance forecasts that the number of households that fall into arrears this year will not exceed 1 per cent of outstanding mortgages.
Means testing
Some of this is down to the mortgage affordability testing that was brought in after the 2008 financial crisis.
Banks and building societies lend money based on a formula that assumes the borrower can withstand interest rates up to 7 per cent higher. This means that while many struck low-rate deals two to five years ago, they were means tested at much higher rates.
As such, assuming the borrower's circumstances and income have not radically changed over the period of the fixed-rate mortgage, coming off will be painful but not wipe-out disastrous.
According to MoneyFacts, the average two-year fixed-rate homeowner mortgage rate on the market is currently 6.85 per cent, which is unchanged from Wednesday.
The average five-year fixed mortgage rate is at 6.36 per cent, down from 6.37 per cent on Wednesday.
Also, despite the predicted 0.25 per cent rise on Thursday, some major lenders, including NatWest, Halifax and Virgin Money announced rate cuts on some of their products days before the Bank of England's announcement.
Virgin Money said it was slashing the costs on some of the deals it offers mortgage brokers by up to 0.41 per cent.
Meanwhile, Halifax said on Wednesday that it was cutting the rate on its five-year fixed-rate remortgage products by 0.18 percentage points.
“Lenders have already priced this increase [by the Bank of England] into their fixed rates so we don't expect pricing to rise,” said Mark Harris, chief executive of mortgage broker SPF Private Clients.
“However, while other lenders may reduce their fixed rates, long gone are the days of rock-bottom pricing.
“Borrowers due to come off cheap fixes face a real payment shock, so it is important to plan ahead as much as possible and act now.”
The government also has a few measures in place aimed at preventing some of the worst-case scenarios that could potentially hit homeowners.
Mortgage lenders that represent 90 per cent of the market have signed up to the new mortgage charter.
Under the charter, lenders are obliged to offer those borrowers coming to the end of a fixed-rate deal the opportunity to lock in a new deal with the option for a better like-for-like deal should rates change up to six months ahead.
The charter also means that a mortgage holder is guaranteed that no repossession will take place within a year of first missing a payment.
Saving winners
Of course, the flip side of interest rate rises is the potential benefit to savers.
According to MoneyFacts, savers can now find a one-year deal that will pay at 5.21 per cent in interest and an easy access savings rate at 2.81 per cent.
“It is imperative savers take time to review their existing accounts and not presume any base rate rise will be passed on to them, as this is never guaranteed,” said Rachel Springall, a finance expert at MoneyFacts
“Those savers who have their cash sitting in an easy access account for convenience may find their loyalty is not being repaid.”
Even though savings rates have slowly been improving, it is estimated that £250 billion sits in deposit accounts and earns no interest.
Earlier this week, the Financial Conduct Authority set out a 14-point plan to make sure that banks and building societies are passing on interest rate rises to savers, something the institutions have been accused of not doing in the past.
The FCA also said that firms offering the lowest savings rates will have justify those rates and explain how they offer by the end of August.
The agency has the power to take action against those that cannot show how their savings rates are fair and said it would do so by the end of the year.
“While some banks have been quick to pass on higher rates to mortgage holders, they've dragged their heels on handing savers better deals,” said Jenny Ross, editor of Which? Money.
“Banks mustn't treat mortgage holders and savers differently by raising rates at different times.
“The regulator must continue to hold banks' feet to the fire – with tough action for those that continue to fall short.”
Joker: Folie a Deux
Starring: Joaquin Phoenix, Lady Gaga, Brendan Gleeson
Director: Todd Phillips
Rating: 2/5
Killing of Qassem Suleimani
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Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
UAE currency: the story behind the money in your pockets
The specs: 2018 Ford Mustang GT
Price, base / as tested: Dh204,750 / Dh241,500
Engine: 5.0-litre V8
Gearbox: 10-speed automatic
Power: 460hp @ 7,000rpm
Torque: 569Nm @ 4,600rpm
Fuel economy, combined: 10.3L / 100km
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
UAE currency: the story behind the money in your pockets
FIGHT CARD
Welterweight Mostafa Radi (PAL) v Tohir Zhuraev (TJK)
Catchweight 75kg Leandro Martins (BRA) v Anas Siraj Mounir (MAR)
Flyweight Corinne Laframboise (CAN) v Manon Fiorot (FRA)
Featherweight Ahmed Al Darmaki (UAE) v Bogdan Kirilenko (UZB)
Lightweight Izzedine Al Derabani (JOR) v Atabek Abdimitalipov (KYG)
Featherweight Yousef Al Housani (UAE) v Mohamed Arsharq Ali (SLA)
Catchweight 69kg Jung Han-gook (KOR) v Elias Boudegzdame (ALG)
Catchweight 71kg Usman Nurmagomedov (RUS) v Jerry Kvarnstrom (FIN)
Featherweight title Lee Do-gyeom (KOR) v Alexandru Chitoran (ROU)
Lightweight title Bruno Machado (BRA) v Mike Santiago (USA)
German intelligence warnings
- 2002: "Hezbollah supporters feared becoming a target of security services because of the effects of [9/11] ... discussions on Hezbollah policy moved from mosques into smaller circles in private homes." Supporters in Germany: 800
- 2013: "Financial and logistical support from Germany for Hezbollah in Lebanon supports the armed struggle against Israel ... Hezbollah supporters in Germany hold back from actions that would gain publicity." Supporters in Germany: 950
- 2023: "It must be reckoned with that Hezbollah will continue to plan terrorist actions outside the Middle East against Israel or Israeli interests." Supporters in Germany: 1,250
Source: Federal Office for the Protection of the Constitution
more from Janine di Giovanni
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India squad for fourth and fifth Tests
Kohli (c), Dhawan, Rahul, Shaw, Pujara, Rahane (vc), Karun, Karthik (wk), Pant (wk), Ashwin, Jadeja, Pandya, Ishant, Shami, Umesh, Bumrah, Thakur, Vihari
UAE currency: the story behind the money in your pockets
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Ain Dubai in numbers
126: The length in metres of the legs supporting the structure
1 football pitch: The length of each permanent spoke is longer than a professional soccer pitch
16 A380 Airbuses: The equivalent weight of the wheel rim.
9,000 tonnes: The amount of steel used to construct the project.
5 tonnes: The weight of each permanent spoke that is holding the wheel rim in place
192: The amount of cable wires used to create the wheel. They measure a distance of 2,4000km in total, the equivalent of the distance between Dubai and Cairo.
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SERIE A FIXTURES
All times UAE ( 4 GMT)
Saturday
Roma v Udinese (5pm)
SPAL v Napoli (8pm)
Juventus v Torino (10.45pm)
Sunday
Sampdoria v AC Milan (2.30pm)
Inter Milan v Genoa (5pm)
Crotone v Benevento (5pm)
Verona v Lazio (5pm)
Cagliari v Chievo (5pm)
Sassuolo v Bologna (8pm)
Fiorentina v Atalanta (10.45pm)
THE BIO:
Favourite holiday destination: Thailand. I go every year and I’m obsessed with the fitness camps there.
Favourite book: Born to Run by Christopher McDougall. It’s an amazing story about barefoot running.
Favourite film: A League of their Own. I used to love watching it in my granny’s house when I was seven.
Personal motto: Believe it and you can achieve it.
Teaching in coronavirus times
Results
STAGE
1 . Filippo Ganna (Ineos) - 0:13:56
2. Stefan Bissegger (Education-Nippo) - 0:00:14
3. Mikkel Bjerg (UAE Team Emirates) - 0:00:21
4. Tadej Pogacar (UAE Team Emirates) - 0:00:24
5. Luis Leon Sanchez (Astana) - 0:00:30
GENERAL CLASSIFICATION
1. Tadej Pogacar (UAE Team Emirates) - 4:00:05
2. Joao Almeida (QuickStep) - 0:00:05
3. Mattia Cattaneo (QuickStep) - 0:00:18
4. Chris Harper (Jumbo-Visma) - 0:00:33
5. Adam Yates (Ineos) - 0:00:39
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David Haye record
Total fights: 32
Wins: 28
Wins by KO: 26
Losses: 4
SPECS
Engine: 4-litre V8 twin-turbo
Power: 630hp
Torque: 850Nm
Transmission: 8-speed Tiptronic automatic
Price: From Dh599,000
On sale: Now
The specs: 2018 Nissan 370Z Nismo
The specs: 2018 Nissan 370Z Nismo
Price, base / as tested: Dh182,178
Engine: 3.7-litre V6
Power: 350hp @ 7,400rpm
Torque: 374Nm @ 5,200rpm
Transmission: Seven-speed automatic
Fuel consumption, combined: 10.5L / 100km
COMPANY%20PROFILE%20
%3Cp%3E%3Cstrong%3ECompany%20name%3A%20%3C%2Fstrong%3ENomad%20Homes%3Cbr%3E%3Cstrong%3EStarted%3A%20%3C%2Fstrong%3E2020%3Cbr%3E%3Cstrong%3EFounders%3A%20%3C%2Fstrong%3EHelen%20Chen%2C%20Damien%20Drap%2C%20and%20Dan%20Piehler%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20UAE%20and%20Europe%3Cbr%3E%3Cstrong%3EIndustry%3C%2Fstrong%3E%3A%20PropTech%3Cbr%3E%3Cstrong%3EFunds%20raised%20so%20far%3A%3C%2Fstrong%3E%20%2444m%3Cbr%3E%3Cstrong%3EInvestors%3A%3C%2Fstrong%3E%20Acrew%20Capital%2C%2001%20Advisors%2C%20HighSage%20Ventures%2C%20Abstract%20Ventures%2C%20Partech%2C%20Precursor%20Ventures%2C%20Potluck%20Ventures%2C%20Knollwood%20and%20several%20undisclosed%20hedge%20funds%3C%2Fp%3E%0A
ESSENTIALS
The flights
Emirates flies from Dubai to Phnom Penh via Yangon from Dh2,700 return including taxes. Cambodia Bayon Airlines and Cambodia Angkor Air offer return flights from Phnom Penh to Siem Reap from Dh250 return including taxes. The flight takes about 45 minutes.
The hotels
Rooms at the Raffles Le Royal in Phnom Penh cost from $225 (Dh826) per night including taxes. Rooms at the Grand Hotel d'Angkor cost from $261 (Dh960) per night including taxes.
The tours
A cyclo architecture tour of Phnom Penh costs from $20 (Dh75) per person for about three hours, with Khmer Architecture Tours. Tailor-made tours of all of Cambodia, or sites like Angkor alone, can be arranged by About Asia Travel. Emirates Holidays also offers packages.
Andor
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The past Palme d'Or winners
2018 Shoplifters, Hirokazu Kore-eda
2017 The Square, Ruben Ostlund
2016 I, Daniel Blake, Ken Loach
2015 Dheepan, Jacques Audiard
2014 Winter Sleep (Kış Uykusu), Nuri Bilge Ceylan
2013 Blue is the Warmest Colour (La Vie d'Adèle: Chapitres 1 et 2), Abdellatif Kechiche, Adele Exarchopoulos and Lea Seydoux
2012 Amour, Michael Haneke
2011 The Tree of Life, Terrence Malick
2010 Uncle Boonmee Who Can Recall His Past Lives (Lung Bunmi Raluek Chat), Apichatpong Weerasethakul
2009 The White Ribbon (Eine deutsche Kindergeschichte), Michael Haneke
2008 The Class (Entre les murs), Laurent Cantet
'Worse than a prison sentence'
Marie Byrne, a counsellor who volunteers at the UAE government's mental health crisis helpline, said the ordeal the crew had been through would take time to overcome.
“It was worse than a prison sentence, where at least someone can deal with a set amount of time incarcerated," she said.
“They were living in perpetual mystery as to how their futures would pan out, and what that would be.
“Because of coronavirus, the world is very different now to the one they left, that will also have an impact.
“It will not fully register until they are on dry land. Some have not seen their young children grow up while others will have to rebuild relationships.
“It will be a challenge mentally, and to find other work to support their families as they have been out of circulation for so long. Hopefully they will get the care they need when they get home.”
Killing of Qassem Suleimani
The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
Results
5.30pm: Maiden (TB) Dh82,500 (Turf) 1,400m; Winner: Mcmanaman, Sam Hitchcock (jockey), Doug Watson (trainer)
6.05pm: Handicap (TB) Dh87,500 (T) 1,400m; Winner: Bawaasil, Sam Hitchcott, Doug Watson
6.40pm: Handicap (TB) Dh105,000 (Dirt) 1,400m; Winner: Bochart, Fabrice Veron, Satish Seemar
7.15pm: Handicap (TB) Dh105,000 (T) 1,200m; Winner: Mutaraffa, Antonio Fresu, Musabah Al Muhairi
7.50pm: Longines Stakes – Conditions (TB) Dh120,00 (D) 1,900m; Winner: Rare Ninja, Royston Ffrench, Salem bin Ghadayer
8.25pm: Zabeel Trophy – Rated Conditions (TB) Dh120,000 (T) 1,600m; Winner: Alfareeq, Antonio Fresu, Musabah Al Muhairi
9pm: Handicap (TB) Dh105,000 (T) 2,410m; Winner: Good Tidings, Antonio Fresu, Musabah Al Muhairi
9.35pm: Handicap (TB) Dh92,500 (T) 2,000m; Winner: Zorion, Abdul Aziz Al Balushi, Helal Al Alawi
