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The latest figures shows that in the six months to May, UK mortgage rates rose at their fastest pace in ten years. According to research by Hamptons estate agents, this interest rate rise means that it is now cheaper on a monthly basis to rent than to buy. Moreover, over two million households in the UK will see mortgage payments rise.

If you have a mortgage, the headlines are likely causing confusion and concern, and it can be challenging to know where you stand.

At The Salary Calculator, we’ll walk you through:

• What’s happening to interest rates on mortgages and how people will be affected, and
• What options do people have to navigate soaring costs

The interest rate rise and its effect on mortgages

In an effort to address rising inflation, the Bank rate rose from 1% to 1.25% and there have been further warnings that this could increase to as much as 3% by the end of the year. The rate hasn’t been above 1% since 2009, following the financial crash.

According to David Hollingworth, L&C associate director, this means “an entire generation of homeowners used to low rates could be facing a shock. Adding: “Although rates remain low in historical terms the available deals have already risen rapidly. Our analysis shows that the average of the ten largest lenders’ lowest two-year fixed rates for remortgages have already trebled since the lows of last October. That is an increase of more than £130 per month for a £150,000 25-year repayment mortgage.”

But, what does this mean for those with mortgages? Well, those on standard variable rates (SVRs) or tracker rates will be hit the hardest, with the former seeing an average annual increase of £191, and the latter £303, according to UK finance. This will also impact around 2.25 million homes (a quarter of mortgage borrowers).

Those who are on fixed rates (85% of all mortgages), however, will not have to deal with the increase until they remortgage. That said, 1.3 million borrowers are set to come to the end of their fixed-rate deals this year. According to Moneyfacts.co.uk, those remortgaging onto a fixed rate deal will be faced with average rates of around 3.25% for a two-year fix and 3.37% for those locking in for five years.

It’s not just those with mortgages who will feel the sting either. Tom Selby, head of retirement policy at AJ Bell, outlines that renters will also be on the receiving end of this hike and “also likely see costs increase.” Speaking to Sky News, he said: “Landlords will inevitably pass on their own higher costs, although when this happens will depend on the terms of your rental agreement.”

Discussing the impact that these rising rates will have on people, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said that rising prices and rates risk will lead to people being trapped in pricey mortgages that they’re unable to escape, turning them into “mortgage prisoners.” Unfortunately, though, this is already happening and according to Rachel Neale, lead campaigner for the UK Mortgage Prisoners group, over 200,000 people in Britain have already been put in this position.

What are the options?

Looking ahead, it’s likely that rates will climb further. Grainne Gilmore, head of research at Zoopla, said to cope with this, “locking into a rate shortly could save hundreds over the longer-term.”

Meanwhile, for those whose mortgage is set to expire in the next six months, it might be a good idea to remortgage, as it could work out cheaper than later on (for example, November or December’s average rates.)

It has also been recommended by some that overpaying now could save you money in the long-term; Alice Haine, personal finance analyst at Bestinvest, said: “Paying down debt or adding an extra monthly sum to their emergency fund would also strengthen their financial reserves against the myriad of challenges ahead.”

Some lenders are also offering help. For example, Nationwide has expanded its lending ratio, and introduced a simple switcher process. Santander, on the other hand, has introduced a 5% deposit for first-time buyers. At the end of June, it was also announced that from 1 August, borrowers’ finances won’t be subjected to the mortgage market affordability test, where banks and building societies calculate how much to lend.

Mortgage Prisoners UK, a not-for-profit organisation that campaigns for fairer mortgage rates for all, argues not enough is being done, and has called on the government to take action. However, in a statement, a Treasury spokesperson said: “We know that people are struggling with rising prices and worried about the months ahead. That’s why we’ve stepped in to ease the burden, helping eight million of the most vulnerable British families through at least £1,200 of direct payments this year – and giving every household £400 to help pay their energy bills.”

Adding: “As part of our £37bn support package we’re also saving the typical employee over £330 a year through the imminent National Insurance tax cut, are allowing Universal Credit claimants to keep £1,000 more of what they earn and have made the biggest cut to all fuel duty rates ever.”