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Bank of England warns of increasing mortgage rates

[ Posted May 16th, 2012 ]

Despite the fact that the base rate is still low at this moment, the Bank of England put out a warning this week to consumers warning them that mortgage rates are going to increase sharply soon and any mortgage holder that is signed into a variable rate may want to rethink their current deal and switch to a fixed rate product.  The warning could affect as many as 11.2m mortgage holders across the UK, and was issued because of the eurozone crisis which is continuing to increase borrowing costs for banks.

Experts are alarmed at the situation because the banks are not going to foot the higher charges of borrowing for long, and will instead push up their variable rates so that they can ‘restore’ profit margins.  An increase in mortgage rates will most likely be felt by those who are on SVRs or tracker loan and could mean as much as a few thousand pounds more each year for mortgage payments.  The result of course is that some homeowners will not be able to find money in the budget and end up in foreclosure.

According to the Bank of England, the eurozone crisis has already affected some households leaving them to struggle to find more money to make their payments.  The economy is not situated in a good place to help as the double dip recession is being carefully walked around as politicians and policy makers attempt to try to keep the UK out of the chaos in Europe but are still finding the country affected.  With the increase in funding costs the high street banks are increasing their SVR loan rates leaving only those with fixed mortgages safe for the moment.

The warning from the Bank stated that it is likely that as funding costs continue to remain high banks are going to look for ways to compensate which unfortunately means for homeowners an increase in mortgage rates.  Those with the Co-Op, Halifax, and Yorkshire Bank have already felt this impact slightly as the three major lending banks have all increased their SVRs interest rate this month.  More banks are expected to follow suit over the coming summer months which is why it is important for those who do not want to be hit unexpectedly with higher mortgage rates to sign into a fixed product.

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