Homeowners ‘face £200 a month mortgage rise’ as average interest rate nears 10-year high

The rise will come as a ‘huge shock’ to borrowers that fixed their interest rate during the pandemic

Some homeowners are reportedly set to fork out at least £200 more every month after the average interest rate for a two-year fixed-rate mortgage deal has exceeded 4 per cent.

Since the start of this month, the interest rate has climbed to 4.09 per cent, the highest in nearly a decade, according to the analyst Moneyfacts.

This is almost a 10-year high as it is the first time the rate has surpassed 4 per cent since February 2013.

In December 2021, this rate was at just 2.34 per cent. Just a year ago, it was at 2.45 per cent.

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Since then, the average monthly payment on a mortgage for a £250,000 property has increased from £1,115 to £1,332 – the Telegraph reported – which works out to a rise of £217 per month.

Interest rates have been increased after inflation hit a 40-year high of 10.1 per cent in July and is expected to reach 13 per cent by the end of 2022.

The Bank of England has raised the base interest rate by 0.5 per cent to take it from 1.25 per cent to 1.75 per cent.

The increase in mortgage borrowing comes as prices for food and energy have also risen (Andy Rain/EPA)

It was its sixth consecutive increase in the cost of borrowing since December, after a decade of historically low rates.

It comes amid a growing cost-of-living crisis that is expected to see gas and electricity costs skyrocket to new record levels over the coming months while the price of food and other essentials also soars.

Mark Harris, of the broker SPF Private Clients, told the Telegraph that the increase in two-year fixed-rate deals would come as a “huge shock” to homeowners who had fixed their mortgage during the Covid pandemic.

Independent financial adviser Kim Barrett said, as reported by the newspaper, that people tend to choose the cheapest mortgage rates but are left “exposed to the market when it is volatile” after their variable and short-term fixed deals end.

He said young homeowners should fix their mortgages for as long as possible as the amount they borrow for their home could gradually become cheaper over the years if their earnings also increase.