The costs of homelessness are soaring as lenders raise mortgage rates quickly, adding another rising bill for struggling UK households already facing
The cost of a two-year fixed-rate mortgage fell as low as 0.9% last year, but has now risen to an average of 1.89%.
That’s due to two increases in the Bank of England’s base rate, which is factored into the cost of the homeless.
However, the prime rate has increased by 0.5% since December 2021, while the typical two-year fixed mortgage cost has increased by 0.89%, Telegraph report.
Rising mortgage costs mean homeowners have to pay an extra £70 a month to pay off a £150,000 loan over 25 years.
David Hollingworth, of brokerage L&C Mortgages, said: “Exchange rates have changed rapidly as lenders have adapted to higher borrowing costs from the central bank. The speed of change has completely left borrowers surprise.”
Earlier this month, The Mirror reported that more Britons will be able to buy a house under the Bank of England’s plan to scrap tough rules barring lower earners from climbing the wealth ladder.
The bank says about 6% of people, 30,000 people a year, have been forced to spend smaller homeless people due to this strict rule.
More than 6% of Britons have been unable to get mortgages.
That’s history, before Financial crash of 2007Mortgages are fairly easy to get.
It’s not too hard to Borrow 100% of the value of the house., meaning no deposit required. It’s well known that some lenders will even lend up to 125%, often to those struggling to repay.
It all fell apart after the crash, when many households could not continue to pay their mortgages and lost their homes.
In response, the Bank of England introduced a rule in 2014 to strengthen rules about who banks can give mortgages to.
This rule says anyone applying for a home mortgage must be able to repay the loan if mortgage interest rates rise.
In practice, that means the borrower must be able to pay a mortgage interest rate of 3% plus the lender’s ‘standard variable rate’ (SVR) – typically in the region 4-6 %.
So, for example, anyone taking out a mortgage at Halifax, one of the largest lenders, must be able to pay off their mortgage 6.99% a month – 3% plus the lender’s SVR is 3.99%.
This rule was put in place to protect buyers from losing their home and going into debt if mortgage rates went up, but since 2014 the opposite has happened and housing rates are quite low.
As a result, borrowers are required to demonstrate that they can afford mortgage interest rates ranging from 6-9% when their actual mortgage rate can be as low as 1-2%.
What is changing?
The Bank is currently consulting on the complete removal of this regulation. There are concerns that this could drive up house prices.
But Nick Mendes, director of mortgage engineering at brokerage John Charcol, said if this were to happen it would be short-lived.
“Is it going to affect borrowing, as you’ll be able to borrow a little bit more,” he said. But in the longer term everyone will be in the same position.
https://www.mirror.co.uk/money/banks-raise-mortgage-costs-800-26437137 Banks raise mortgage costs by £800 a year as cost of living crisis continues