Londoners brace for interest rate to rise to 0.75% that could add £300 a year to mortgages

Thousands of Londoners were today braced for an interest rate hike which would push up average mortgage payments by more than £300 a year.

Economists widely believe the Bank of England’s monetary policy committee will tomorrow raise interest rates from 0.5 per cent to 0.75 per cent, which would be the highest level since 2009.

Around a third of mortgage holders in London are on variable rates which would be affected by a change, says the Nationwide Building Society.

A quarter-point increase would push up the average mortgage by £26 a month to £1,180, or around £315 annually, it added. While the rise is “modest”, it would add to the cost-of-living squeeze suffered by many households following inflation outstripping wages for around a year — partly due to the slump in the value of the pound after the 2016 Brexit vote pushed up the costs of imported goods.

Families have taken out billions from their savings or in loans to maintain their living standards.

Robert Gardner, Nationwide’s chief economist, said: “In real terms, wage rates are still at levels prevailing in 2005. Moreover, a small proportion of households already have a relatively high debt service burden. For those, some of whom will be on variable rates, any rate rise will be a struggle, even though the impact on the wider economy and most households is likely to be modest.”

A rate rise may also further hit the housing market, with prices already falling in parts of the capital, as homeowners realise their mortgage payments could go up further.

London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors Jeremy Leaf said: “The direction of travel always seems to have an adverse impact on confidence and is likely to reduce low levels of transactions further.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Many borrowers have been taking advantage of the competitively priced fixed rates available and protecting their monthly payments against future rate rises.”

Across the UK, house prices were up by 2.5 per cent annually in July, compared with a 2 per cent annual increase in June, Nationwide said.

The rise pushed the average property value to a new record high of £217,010, according to its index, but it is more than double that figure in London where prices in many areas are now falling. House prices across the country increased by 0.6 per cent month-on-month in July — the second month of increases in a row following a 0.7 per cent upturn in June.