MORTGAGE RATE SHOCK: MORE THAN 1.4 MILLION HOUSEHOLDS WILL SEE THEIR FIXED-RATE DEAL END THIS YEAR

1.4 million mortgage borrowers could face financial shock this year when their low-interest, fixed-rate mortgage deal ends.

According to the Office of National Statistics, nearly six in ten mortgage deals currently at a rate of below 2 per cent will come up for renewal in 2023. This means 57 per cent of all mortgage borrowers will face higher mortgage repayments when they either transfer onto their lender’s standard variable rate or move into a new mortgage deal.

The Bank of England increased mortgage rates significantly last year. In February 2022, the Base Rate was 0.50%, and by the end of December 2022, it had reached 3.50%. Increasing interest rates is a tool the Bank Governor uses to try and curb inflation, often referred to as the rising cost of living. With no sign of the price of everyday goods falling, a significant easing of interest rates is unlikely to happen soon.

Lenders have increased their interest rates in line with the Bank of England. To put higher interest rates into context, a borrower with a 25-year £300k mortgage repayment mortgage, fixed at 1.75 per cent, will be paying £1,235 monthly. A borrower taking out the same mortgage today with a fixed interest rate of 5.75 per cent will pay £1,887 monthly – £652 more.

Homeowners who know their fixed-rate mortgage deal is up for renewal should plan ahead. Speaking to a mortgage adviser early to explore all the loan types and options is a good idea. A new mortgage can be put in place up to six months in advance, and having time to consider all the options is an advantage to anyone carefully navigating higher costs.

Borrowers must be prepared to shop around and not stay with their current lender if they want to save money. A slight difference in percentage can add up to a significant sum over the lifetime of a loan. A high credit score always helps a mortgage application, and cleaning up a credit score in preparation for a new mortgage is advisable. Ensuring all monthly bills, not just a credit card, are paid on time is essential as minor errors, such as missing a phone payment, can be damaging to a credit score.

A new fixed-rate mortgage may provide the financial security of regular fixed repayments, but those remortgaging this year should still be budgeting now for new higher mortgage costs. Making spending cuts will be a challenge for those who have already had to make significant savings this year, but planning and budgeting is the best way to navigate difficult times.

Source:

https://www.ons.gov.uk/

https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy/baserate.xls?la=en&hash=EEB8729ABFFF4B947B85C328340AE5155A99AD0F

https://moneyfacts.co.uk/mortgages/first-time-buyer-mortgages/2-year-fixed-rate/ (19/01/2022)