More face increase in home loan payments

HIGHER mortgage payments are on the way for more than a million home owners when lenders impose rate increases from the start of next month.

The worst increases will be felt by Halifax customers, who could typically find themselves paying nearly £200 extra a year.

The Co-operative Bank, Clydesdale Bank and Yorkshire Bank are also among those raising rates from May 1, blaming the weak economy and the increased cost of funding a mortgage.

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Fears have been raised that people could struggle to switch to a better deal as lenders have already started tightening their borrowing criteria, triggering a fall in the proportion of mortgages being approved.

Halifax is raising its standard variable rate (SVR) from 3.5 per cent to 3.99 per cent, affecting 850,000 home owners.

The average balance of those affected is £67,500, meaning payments would increase by nearly £16.40 a month to £499 on a capital repayment mortgage with 15 years remaining. This equates to nearly £200 extra a year. Someone with a higher balance of £100,000 would pay £24.30 extra a month, with monthly repayments going up to £739, the equivalent of nearly £300 more annually.

Around 54,000 Co-operative Bank customers will see rates go up by 0.5 per cent to 4.74 per cent, meaning payments will typically increase by £15 a month, or £180 a year.

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Clydesdale and Yorkshire Banks’ rate will rise from 4.59 per cent to 4.95 per cent, affecting 30,000 customers, whose payments will typically go up by less than £30 a month.

Borrowers who have not managed to pay off much of their loan or are in negative equity could find themselves stuck with their existing lender and unable to switch to another provider.

Ray Boulger, of mortgage adviser John Charcol, said the degree of equity borrowers had in their home would be “the most important factor” for those facing rate rises who want to switch deals.

He said: “Even if they have only got 20 per cent equity they will still have options that will enable them to get a better deal.”

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Mr Boulger also said that even small sums of bad credit would be scrutinised by lenders, saying: “Adverse credit will almost certainly cause a problem. The key is the amount of equity within your house.”

He advised those worried they may become “trapped” as lending rules tighten to overpay their mortgage, saying: “For a lot of people, the rate they are paying now will be lower than a few years ago.

“Finances will be difficult due to utility bills and petrol, but quite a lot of people will be able to afford to overpay. Doing this will increase your equity.”

Greater restrictions are set to be placed on mortgages due to a clampdown by the Financial Services Authority on irresponsible lending, to make sure borrowers can only take out mortgages they can afford.

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Despite the concerns for home owners, Mr Boulger said that the current low interest rates were a “key factor” helping to keep repossessions down.

“The danger will be if interest rates go up too far, too quickly,” he said.

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