London-listed retailers have taken a hammering on the news of the Bank of England’s decision to raise interest rates as shopper’s disposable incomes are set to suffer a large blow.
Homeowners are set to face a triple financial whammy from April, with the interest rate climb increasing mortgage payments, national insurance (NI) hike reducing real wages, and surging energy bills all set to squeeze budgets higher than ever.
FTSE 100 retailers Associated British Foods PLC (Primark’s owner), JD Sports Fashion PLC (LSE:JD.), and Next PLC (LSE:NXT) eased 1.5%, 2.2%, and 2.5% respectively.
Meanwhile, FTSE 250 listed Asos PLC slipped 2.7% compared with FTSE AIM 100 Boohoo Group PLC (AIM:BOO) which tumbled 3.7%.
The impacts of higher rates on mortgages will be felt in April, which will impact retailer’s sales and explains why they were trading in negative territory on Thursday.
The average UK house price was £255,535 according to HM Land Registry, based on Statista 2021 figures.
With a rate rise from 0.25% to 0.5%, a person on a tracker mortgage who's paying 2% interest on a 25-year, £250,000 mortgage would see their monthly £1,060 repayment rise by around £30 (£360 per year), Experian (LSE:EXPN) said.
Tracker mortgages, like variable-rate mortgages, have changing interest rates on repayments.
The difference with a tracker mortgage is the interest rate is set at a fixed amount above or below another rate, which it tracks – usually the BoE base rate, Experian (LSE:EXPN) explained.
“Borrowers on variable rate mortgages can expect the rise to be passed on swiftly, and those who are re-mortgaging to a new fixed-rate will feel the pain too,” Sarah Coles, Hargreaves Lansdown senior personal finance analyst, said.
Coles anticipates mortgage payments to rise by a significantly more substantial amount.
"If someone [is] currently paying 1% on a £200,000 mortgage over 25 years remortgaged at the end of the fixed period to a new deal costing 2%, it could push up their monthly costs by £94," Coles added.
Meanwhile, millions of households around Britain will face a 54% increase in their annual energy bill when energy regulator Ofgem's new price cap comes into force on 1 April.
Prepayment customers will see an increase of £708 to £2,017, while customers on default tariffs paying by direct debit will go up by £693 a year.
Median annual earnings were £31,722 for full-time workers in April 2021, the Office for National Statistics said.
Employees, employers, and self-employed will pay an extra 1.25 percentage points of their income in NI from April.
So, the average worker will pay an extra £255 a year in contributions.