The increases hit new buyers particularly hard because of the speed at which lenders change ratessaid Mr Strutt. “People want to take the time to think about things, but if they wait a week, their mortgage rates could go up by a whole percentage point.”
In one case, a lender raised rates twice a week.
“A customer wanted a fixed-rate period of five years mortgage for rental. We quoted 2.79 per cent, with monthly payments of £580. That rose to 3.19 per cent. and payments of £661.” It means the landlord will pay 69 per cent more than their current monthly payments of £390.”
Another client saw his quoted monthly mortgage payments rise by £118 because it took him two weeks to return a form, Mr Strutt said.
Sarah Coles, of Hargreaves Lansdown, an investment firm, said there was imminent risk to the 1.3 million people who walked out of fixed-income deals this year. “Average mortgage rates are the highest we’ve seen since 2013. A lot of people will find they need to stretch their money further,” she said.
Mortgage broker Lewis Shaw, of Shaw Financial Services, said the higher costs could push homeowners to sell when they come to the end of their resolution.
“With energy prices expected to rise in October, fuel costs at record highs and now significant increases in mortgage rates, homeowners are facing a perfect storm,” he said.
Freddie Poser, of campaign group PricedOut, said rate hikes would widen the gap between buyers who could afford to pay cash and those who needed a mortgage.
Rising interest rates have a dramatic effect on the amount of money that mortgage borrowers pay to their lender over the course of their loan. Of course, rates change over the life of a mortgage, but to put this in context, if the bank rate were 1.25 percent for the entire term of a 25-year mortgage from an average London buyer, assuming this is an interest rate of 2.8 percent, they would pay a total of £155,329 in interest to their lender.
While a buyer buying with cash would pay £529,829 for the property, a buyer buying with a mortgage (including their 25 percent down payment) would end up paying £685,158 – 29 percent more.
This assumes that house prices remain stable over the life of the mortgage. In reality, price growth allows a borrower to acquire more equity in his property when he re-mortgages and therefore qualifies for a lower interest rate.
But the numbers illustrate how much more exposed mortgage buyers are than those who buy cash.
Homeowners can lower their bills by overpaying their mortgage, Mr Strutt said. “The sooner you can pay it off, the faster the costs will come down,” he said.