As interest rates continue to rise, those coming off their fixed deals this year may be in for a “nasty shock” as they look for new fixes for their mortgage.
The average two-year fix stood at around two percent in 2021 – the lowest level in history, however according to Uswitch, the average two-year fixed-rate mortgage rate in the UK is 5.29 percent (based on 75 percent LTV).
According to Office for National Statistics figures, more than 1.4 million people have a fixed-rate mortgage that will come to an end in 2023.
They will likely have taken out their fixed-rate deal when interest rates were at rock bottom, meaning they could be in for a nasty shock when they look to remortgage this year.
With the US Fed raising interest rates once again this week, experts expect the Bank of England to follow and increase the base rate once again – which could further push mortgage rates up.
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The Bank of England raised interest rates in March from four percent to 4.25 percent.
The 0.25 percentage point increase marks the 11th rise since December 2021 when the Bank rate stood at just 0.1 percent.
It puts the Bank rate at its highest level since 2008 and has applied further upward pressure on the cost of borrowing.
The next base rate decision will be announced on May 11, 2023.
Laith Khalaf, head of investment analysis at AJ Bell, commented on the forthcoming MPC meeting on May 11.
He said: “While the Bank may deem higher interest rates necessary to tame rampant inflation, the harsh irony is this heaps even more pressure on household budgets in the short term.
“Certainly there appears little respite in view for those taking out a mortgage, and millions of people rolling off cheap fixed-rate deals in the coming year will be in for a nasty shock.
“The silver lining, such as it is, is for cash savers, who will continue to enjoy reasonable rates of returns on their money after more than a decade in the wilderness.
“However, double-digit inflation makes this a somewhat pyrrhic victory.”
Since October’s mini-budget, mortgage rates have slightly fallen, but anyone looking to re-mortgage and fix now may be faced with higher rates.
Around 1.6 million people on the tracker and variable-rate deals will have experienced a hike in their mortgage payment each month as the Bank of England increased the base rate in March.
For example, a homeowner on a £200,000 tracker mortgage over a 25-year term at a 4.5 percent rate would have to pay an extra £28 a month if the most recent interest rate rise was passed on in full, according to the investment platform Hargreaves Lansdown.
