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5 June 2007

Mortgage bills could soar for one million homeowners

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by Kay Mitchell

Mortgage bills could soar for one million homeowners

At least one million homeowners are about to suffer as mortgage repayments are soaring by nearly a third. Experts estimate that one fifth of homeowners changed to fixed-rate loans in 2005, the majority of which switched after an interest rate slash in August of the same year. Many of the deals were taken for 2-3 years, suggesting that many will shortly expire.

Since that time, there have been 4 further interest rate increases and if borrowers continue with another fixed-rate deal, the terms will not be as attractive. Some could be paying hundreds of pounds more each month.

Analysts at Credit Suisse, the finance group, commented that a million homeowners will see a dramatic leap in their rates during the next year and for some, the extra cost could be too much to bear. During 2005, the best fixed-rate deals were on average 4.5%. Similar offers are now at 5.5%, however interest rates are projected to rise again during 2007.

On this basis, a homeowner with a £300,000 repayment mortgage will see monthly repayments jump 10%, from £1,668 to £1,842, this is based on a 25 year term.

For the homeowners on interest-only mortgages, they would see repayments leap 22%, from £1,125 to £1,375. Credit Suisse also highlighted that the repayments could push more households into arrears, especially those who have already pushed themselves to the limit to step onto the property ladder.

It became apparent by The Bank of England that the number of homebuyers taking out a mortgage has dropped by nearly a fifth during 2007. They also commented that only 107,000 had a home loan approved in April – the lowest level for one year. Economists predict that the bank will need to increase interest rates further from the current 5.5% during the summer to rein in inflation. With the four quarter point increases during the past 12 months taking effect, inflation is proving more stubborn than anticipated. The bank’s inflation report in May 2007, said that rates must be raised to 5.75% to bring Consumer Price Index inflation back to its 2% target within 2 years. It stood at 2.8% in April.

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