Interest Rate Hike Looms as Mortgage Costs Soar

The UK economy is bracing for a potential interest rate hike by the Bank of England (BoE) in September, which could send mortgage costs soaring. With inflation still on the rise and global bonds being sold off, money markets are pricing in up to three rate hikes in the coming months.

The yield on two-year UK gilts has increased more than 7% over the past four weeks, with the current two-year yield standing at 4.54%. This means that homeowners who delay renewing their mortgage terms could face a notable rise in interest payments.

According to data from Moneyfacts, the average two-year tracker rate is 4.51%, while the average standard variable rate (SVR) on 1 September was 7.13%. On a £250,000 mortgage lasting 25 years, this difference could result in an additional £400 per month or £4,760 annually.

Analysts are warning that homeowners need to act quickly to secure deals before the best rates disappear. Justin Moy, managing director at EHF Mortgages, urged borrowers to 'lock in a deal now rather than waiting to see if things settle'.