My fixed mortgage is coming to an end – how much will the interest rate go up?
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More than half of homeowners will reach the end of their fixed-rate mortgage in the next three years, and rising interest rates have left many worried that they won’t be able to pay their bills.
As mortgage rates continue to rise, boosted in the first nine months of this year by the Bank of England’s slowly rising key rate and then by the Chancellor’s mini-budget, the impact on household finances could be serious.
According to Compare the Market, about 55 percent of homeowners terminate their current fixed deal and must renew their mortgage within three years or switch to their lender’s standard variable rate (SVR).
It comes as the Bank of England has estimated that around 800,000 families will struggle to pay their home loans by 2023 – an increase from around 500,000 last year and the highest since the build-up to the 2008 financial crisis.
Higher bill: Rising mortgage costs threaten household finances as fixed-deal borrowers face a rate shock
In just over two years, the average two-year mortgage rate has risen 4.08 percent from 2.38 to 6.46 percent, according to Moneyfacts.
On a £200,000 mortgage, this means the borrower will pay an extra £460 per month up to £1,345, an additional £5,520 per year.
And some may see even stronger increases as the cheapest mortgage rates hit historic lows last year. In September 2021, Nationwide released its lowest-ever rate of 0.87 percent for borrowers with a 40 percent down payment for a two-year fixed deal.
As a result of these increases, 89 percent of homeowners who are nearing the end of their fixed-rate agreement say they are concerned that their mortgage payments will increase.
And of those, nearly nine in ten say they fear the increases will affect their ability to pay daily household bills.
The appeal of fixed-rate mortgages is that homeowners can be confident about how much their monthly payments will be for the duration of the deal.
By locking in a rate, you are protected against future interest rate increases until the fixed period expires.
Fixed rate mortgages are traditionally popular among homeowners, and Compare the Market found that 75 percent of those surveyed had these types of deals.
While nearly three quarters (71 percent) say they will choose to refinance when their fixed-term contract expires, about 15 percent say they will not refinance.
This can mean that they face even higher redemption costs if they are switched to their lender’s standard floating rate (SVR) rate, which is usually higher than the deals offered on fixed mortgages.
However, as fixed-term mortgage rates continue to rise, homeowners now face a tough choice as some fixed-term contracts have recently risen to a rate higher than the average SVR.
On Oct. 7, the average SVR rate was 5.44 percent at the five largest lenders, but the average two-year fixed rate is now 6.46 percent. However, lenders can increase their SVR at any time,
Alex Hasty, director of Compare The Market, said: “We understand it is an uncertain and difficult time for many homeowners as SVR and fixed interest rates rise, the number of mortgage products fluctuates and the cost of living deepens. Those who are nearing the end of their fixed-rate deal are likely to face a major repayment shock, even if they take out a new mortgage.
“For these homeowners, the best practice is to transfer the mortgage rather than move to your lender’s higher standard variable rate.
‘It is important to compare mortgage products online. Checking out the deals available now and keeping abreast of what’s happening in the market will help you prepare your budget and save for the future.”
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Payment pressures: Due to rate hikes, 89% of homeowners who are nearing the end of their fixed deal say they are concerned about their mortgage payments
You can do this with the This is Money mortgage finder, powered by broker L&C.
David Hollingworth, mortgage expert at L&C, added: “The rapid rise in mortgage rates will understandably surprise borrowers and clearly cause great concern as households face higher living costs and large increases in monthly payments. payments.
“Most like to lock in their rate so they know where they stand and at least have some certainty about who is probably the biggest extrovert. As a result, many borrowers are now looking ahead to the end of their current deal, trying to pre-empt any further hikes and close a deal now.
“I expect we will continue to see borrowers take the security approach first in setting their rates. There is still an expectation of base rate hikes that will eventually feed through to the lender’s Standard Variable Rates.”
What will happen to house prices?
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Oxford Economics expects mortgage rates to peak later this year but remain high in 2023
Rising interest rates and the associated impact on the affordability of mortgages are causing ongoing uncertainty in the housing and mortgage markets.
On October 10, rating agency Fitch predicted that the key interest rate would rise to 4.25 percent in December 2022 and 5.0 percent in the second quarter of next year.
Earlier this week, analysts at Capital Economics said house prices will fall by about 12 percent by mid-2024 as mortgage rates rise sharply, while Oxford Economics estimates the figure to fall between 10 and 13 percent.
Halifax’s latest house price index showed UK house prices fell in September, 0.1 percent lower than in August, leading experts to speculate that a market decline is imminent.
House prices are overvalued to the highest level since 2000, when the company first started tracking the data, according to a new report from Oxford Economics.
In 2007, house prices were overvalued by 25 percent, the second highest level in the past two decades, according to the data. Today, that figure is a much higher 37 percent.
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