Credit, Collections & Insolvency News
More than 1.4 million households are facing a steep increase in their monthly outgoings when they are forced to renew their fixed rate mortgages this year according to new Office for National Statistics (ONS) analysis.
The research shows that the 57% of fixed rate mortgages coming up for renewal in 2023 are fixed at interest rates below 2%.
It adds that deals that are due to mature through the course of 2024 will be from two-year fixed-rate offers made in 2022 and five-year fixed-rate deals made in 2019, when mortgage rates were generally higher than 2%.
The Bank of England lifted interest rates from 0.25% at the beginning of 2022 to 3.5% in December, its highest rate since October 2008.
However, Moneyfacts data shows that the current average two-year fixed rate mortgage has an interest rate of 5.75%, while the average five-year fixed stands at 5.57%.
According to the ONS, 353,000 fixed rate mortgages will have to be renewed in the first three months of this year, while the number of fixed rate deals coming to an end in 2023 will peak between April and June at 371,000.
UK Finance data estimates that 1.8 million fixed-rate deals are scheduled to end this year.
A UK Finance spokesperson said “Lenders stand ready to help customers who might be struggling with their mortgage payments, with a range of tailored support available. Anyone who is concerned about their finances should contact their lender as soon as possible to discuss the options available to help.”
The government’s numbers department points out that the Office of Budgetary Responsibility, in its November report, expects Bank rate, to peak at 4.8% by the end of 2023. The department said “Mortgage interest rates started to increase during 2022, this is likely to make borrowing more expensive for those with fixed rates deals coming to an end in 2023. Those with variable rate mortgages and private renters are also facing higher housing costs.”
The body points out that should the interest rate on a £100,000 mortgage rise from 2% to 6%, assuming a 25-year capital and repayment mortgage, then the monthly mortgage repayment on the same mortgage would lift by £220 to £644.
Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “1.4 million mortgage borrowers are in a fix that’ll set them back an extra £250 a month by the end of the year. They’re coming to the end of fixed rate deals – most of which are under 2% – and face fixing at as much as 6%. It means either paying more for years – or reverting to a sky-high SVR while they wait for rates to fall. But while times are tough for borrowers, they’re even harder for renters.”
“It’s going to come as a particularly unpleasant shock for those currently paying particularly low rates – and people who have borrowed bigger sums of money for more recent purchases. If the rate on a £100,000 repayment mortgage rose from 2% to 6%, monthly costs would rise £220 to £644. With a 300,000 mortgage, they’d rise £661 to £1,933.”
“For those whose fixed rates end in 2024, there’s better news. Not only are mortgage rates likely to have dropped back by then, but also rates that were fixed five and two years earlier were a bit higher, so more of them are already paying more than 2%.”