In 2023, 1.4 million fixed rate mortgages will expire, 57% of which were fixed at rates below 2%. [1]
Putting the impact into pounds and pence, data from the Office for National Statistics (ONS) found that on a £300,000 mortgage, borrowers could be paying up to £661 a month more once their current deal expires. The ONS reckons the average rise will be around £250 a month. [1]
Inflation – a measure of the cost of living – was at 10.1% in April 2023. The Bank of England (BoE) has been increasing the Bank Rate since the start of 2022 as part of its efforts to return inflation to its 2% target level.
In theory, this puts people off spending and encourages them to save instead. With less demand for goods and services, prices should fall, and inflation should start to go down.
As the Bank Rate increases, so have the rates at which borrowers repay their mortgages:
Most people with a mortgage will be affected by the rise in interest rates in some way. How much more you will need to pay will depend on the type of mortgage you have, among a range of other factors.
A mortgage is the largest financial commitment for most people. However, many homeowners do not review their mortgages regularly or know when their present rate expires.
Recent research found that over a million people were on their lenders Standard Variable Rate [3], the default rate that borrowers drop onto when their mortgage deal ends. This will presently be between 7% and 8% and nearly double the present market leading rates.
Things to consider when reviewing your mortgage:
For many first-time buyers, meeting deposit requirements is the biggest hurdle. Before looking at properties, you need to save for a deposit. Generally, you need to try to save at least 5% of the cost of the home you’d like to buy.
Saving more than 5% could give you access to a wider range of cheaper mortgages available on the market and a lower interest rate. Mortgage rates become cheaper at key incremental thresholds of deposit value. For example, having 10% of the property value will unlock better rates than just 5%. Having 20% will mean you can access better rates than 10% and so on – with the cheapest mortgage rates available to borrowers with a 40% deposit or more.
There are a range of schemes available to help first-time buyers get on the housing ladder, particularly if you only have a small deposit. Find out more from Money Helper: Government schemes for first-time home buyers and existing homeowners
Rising living costs and interest rates are stretching household finances. If the increased interest rates have made your mortgage payments unaffordable, it’s important to seek help as soon as possible. There is help available from organisations such as MoneyHelper or StepChange.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Pareto Financial Planning does not give advice on mortgages but we can refer you to specialists in this area.
To discuss any of the issues raised in this article, please contact us.
Data Sources:
Professional Mortgage Services – WWW.PMS-UK.ORG
Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.
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