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UK interest rates left unchanged: good news, but pain for borrowers isn't over

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The Bank of England has paused the recent interest rates hike at 5.25%. This is a welcome relief for millions of homeowners.

First-time buyers, homeowners on variable or tracker mortgage deals, and those about to remortgage will be cheering the news that interest rates have not been hiked today.

Although, mortgage rates remain high. Compared with December 2021, those on a tracker mortgage are paying £540 more a month, or £299 more a month on a standard variable rate (SVR). And about 679,000 residential mortgage customers are on their lender’s SVR.

The majority of mortgage holders are on fixed deals, and many of these will have cheap rates of less than 3%. Millions of fixed deals are due to expire this year and next, which could trigger a large hike in payments when those homeowners come to remortgage, given that average mortgage rates are now north of 6%.

As for private tenants, rental bills are currently the highest they've ever been. According to the latest HomeLet Rental Index, the average annual rent for new lets in the UK is at £1,261/month, up by 10.3% from last year. While the average rent in London is £2,145/month, up by 13% from last year.

Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.

The latest Bank statistics show that in July, the average annual interest rate was 21.7% on bank overdrafts and 20.76% on credit cards. The average rate for personal loans was 8.61%, up slightly on the previous month. Lenders could decide to put prices up, if they expect higher interest rates in the future.

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The pause on interest rates hike today is good news. But the pain for many borrowers isn’t over. Mortgage rates remain high and it’s important to remember the impact of these rate hikes is a slow burn.

What has been done over the past 14 meetings at the Bank of England is only just being felt by many homeowners, with half a million of them dreading the anticipated Christmas present of increased mortgage payments at the most expensive time of the year.

Private renters are squeezed by high housing costs and many households are dipping into savings or borrowing with a record high personal loan rate. The cost of living crisis is still with us.

Matt Dronfield, Managing Director of Debt Free Advice

For anyone worried about or struggling with housing debts or any other debts, reach out to Debt Free Advice as soon as possible. Our 0800 808 5700 line is open 7 days a week, from 8am to 8pm.

Our free, impartial advice is available through phone, video call or face to face at our advice centres across London.

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