Millions of homeowners could face shock mortgage bill rise this month – here’s how to avoid it
Banks and building societies will start paying back more than £100billion they've borrowed and that could be bad news for cheap mortgage deals
HOMEOWNERS could face a hike in their mortgage bills as a Government scheme comes to an end this month.
Banks and building societies have cheaply borrowed more than £100billion through the Term Funding Scheme (TFS) since it was launched 18 months ago.
It was designed to make sure that the Bank of England's interest rate cut of 0.25 per cent in August 2016 was passed onto borrowers in the wake of the EU referendum result.
The cash pot gave lenders access to cheap money and helped finance cheap mortgage deals - but all that is set to come to an end this month when the banks and building societies have to start paying the money back.
Its ending has sparked fears that millions of Brits could see rate rises if they're a first-time buyer or looking to remortgage when their current deal comes to an end.
And it could be even worse news for those on Standard Variable Rates (SVRs) deals, who could face a hike even sooner if their lender decides to up their rates.
London and Country's David Hollingworth said: "As the scheme comes to an end it raises the question of whether lenders will be able to replace the funding as cheaply.
"If not then it could put upward pressure on mortgage rates and with talk of potential for a base rate rise as well it could be the end of the lows that borrowers have been used to."
If the banks were to push up their rates by 0.25 per cent, homeowners could see the best deals on the market jump in price.
Based on Sainsbury's Bank two-year fixed deal (1.09 per cent) for a mortgage worth £150,000 monthly repayments would increase from £589 to £606 a month.
That's an extra £17 a month, or £204 a year.
MORTGAGES: HOW TO BEAT A HIKE IN RATES
THE Bank of England will announce on Thursday if it is to raise base rate again.
If it does then those on tracker mortgages will likely see their monthly repayments go up.
If you're worried about the potential impact the Term Funding Scheme might have for the best rates on the market, it could be worth you signing up for a fixed-deal instead so you can protect yourself from any rate rises coming up.
Mr Hollingworth said: "There seems little reason for borrowers thinking of fixing but who haven't done so yet to hold off."
A fixed-rate deal is where the interest is fixed for a length of time, which typically last two or five years.
To find the best deals on the market, you can use a price comparison site to find them yourself, or use a mortgage broker, who will not only help you find a deal but will guide you through the entire house buying process.
Most lenders will let you set up your next deal at least three months in advance and it's worth speaking to your current provider to see if they can match the offer you've found.
With HSBC's five-year fix deal on a £250,000 mortgage, payments will increase from £1,053 a month to £1,083.
That'll cost an extra £30 per month - or £360 over a year and an eye-watering £1,800 extra over the five years.
Mr Hollingworth added while competition in the mortgage market could keep rates low for the time being as lenders "fight hard to attract business", higher costs will inevitably feed through to the deals on the market.
According to figures from , competition in the mortgage market is already starting to slow.
It found that the average rate for a two year fixed deal is 2.35 per cent - up from a record low of 2.20 per cent in October - while the number of products available has also dropped to just over 4,500, down from a high of 4,815 just three months ago.
It might not be bad news for everyone though.
While mortgage rates rising might hit families in the pocket, it could mean savings rates could also rise.
As banks have been able to borrow cheaply, they've had no need to compete hard for savers' cash with attractive rates.
But experts think that the ending of TFS and another scheme called Funding For Lending, could see a boost to savings rates as bank try and attract new customers.
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Savings expert Andrew Hagger said: "Banks will need to refocus their attention on retail savings to fund their lending activities.
"As a result we should start to see an improvement in savings rates although I think it will be a gradual recovery, after all the banks have four years in which to repay the £100 billion borrowed from the TFS."
The Bank of England will decide on Thursday whether to raise interest rates or not.
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