1.8m borrowers to face mortgage rise of £230 a month

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by Kay Murchie

Approximately 1.8 million borrowers will see their fixed-rate mortgages expire this year and, as a result, could face a mortgage rise of up to £230 a month, according to the Bank of England’s Financial Stability Report.

The credit squeeze has resulted in the end of cheap mortgage deals so those on fixed-rates will have no other option but to change to standard variable rates, which on average are 2.5% higher.

This could put a huge financial strain on many homeowners said the Bank of England.

The doom and gloom continued as earlier this week, the Nationwide said that UK property prices are lower than they were a year ago. House prices fell 1% in a year, the first annual drop in over a decade.

Jim O’Neill, chief economist at Goldman Sachs, warned earlier this week that UK homeowners will suffer the most as Britain takes the biggest hit of the worldwide credit crisis.

Mr O‘Neill, who is renowned for making far-sighted calls, warned that the ensuing slowdown will be passed on to homeowners.

Also in its report, the Bank of England said the prospect of falling house prices, together with increased borrowing costs, could put mounting strain on personal finances and the overall economy.

In a speech on Tuesday night to the Royal Society in Edinburgh, a member of the Bank of England’s Monetary Policy Committee, Mr David Blanchflower, said average property prices in the UK could fall by 33%.

His predictions is in line with the International Monetary Fund (IMF), who recently said that property in the UK is overvalued by 30%.

Mr Blanchflower’s prediction would plunge far more borrowers into negative equity. Although the existing number is ’small’ at around 1%, if Mr Blanchflower’s forecast proves to be right, then at least 1.7 million borrowers could find themselves in negative equity (where their home is worth less than their mortgage).