The Bank of England does nothing, but homeowners mustn’t

The Bank of England has kept interest rates on hold at 5.25%. The decision is not unexpected given that the Monetary Policy Committee has been backed into a corner by the twin threats of inflation and recession.

David Kuo, Head of Personal Finance at Fool.co.uk, says: “The news will be very disappointing for homeowners, especially the 1.4 million fixed-rate mortgage payers whose deals are set to come to an end in the next twelve months1.

“Homeowners with a £100,000 mortgage could be faced with a £200 jump in monthly repayments if they are forced onto their lenders’ Standard Variable Rates.

“Some homeowners will be able to negotiate new fixed-rate deals. For these borrowers, interest rates will be similar to two years ago, when the average tracker-rate mortgage was 5.25%.

“People who can’t switch may have to drastically cut their household expenditure to afford the higher repayments. But rather than wait for the inevitable to happen, homeowners can overpay their mortgage now by exploiting the time before their fixed-rate deals end.

“Making additional monthly payments of £200 on a £100,000 mortgage will cut the outstanding debt to £95,550 instead of £98,000 after twelve months. Apart from reducing future repayments, it will put you in a better position when you remortgage.

“The Bank of England has been caught between a dog and a lamppost as inflationary pressures and an economic slowdown slashes its options over interest rates. The Monetary Policy Committee has decided to do nothing, but consumers mustn’t.

“Homeowners should take active steps now as available credit dries up to ensure that they are first in line for the best deals.”