MORE than 1.4million households are facing new mortgage increases of around £250 a month.
Brits whose fixed-rate mortgages are coming to an end this year are set to see their bills go up.
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The majority of fixed-rate mortgages in the UK (57%) which are coming up for renewal in 2023 were fixed at interest rates below 2%, according to the Office for National Statistics (ONS).
Based on Bank of England data, a peak in fixed deals ending is expected between April and June this year, it added.
It comes as the BoE hiked its base rate for the ninth time in a row in December in a bid to tackle inflation.
Borrowers on fixed-rate mortgages have been cushioned from the immediate impact so far.
But, they might get a shock when they come to renew.
The property market has experienced a tumultuous last few months, particularly following the government’s disastrous mini-budget.
It caused mortgage rates to shoot up to a 14-year high in September, although they have since fallen.
The average interest rate on outstanding mortgages with a fixed rate was 2.08% in November 2022, the ONS report said.
This contrasted with an average interest rate of 4.41% on variable-rate mortgages and average interest rates being offered on new fixed-rate mortgages at about 6%.
If the interest rate on a £100,000 mortgage increased from 2% to 6% (assuming a 25-year capital and repayment mortgage), then the monthly repayment would increase by £220, from £424 to £644, the ONS said.
The same increase on a £300,000 mortgage would see monthly repayments rise by £661, from £1,272 to £1,933, it said.
Of course, the potential increases borrowers will face depends on their circumstances.
It’s definitely a good idea to speak to your lender or broker for more clarity on your position.
Based on the BoE’s December 2022 financial stability report, the ONS suggested homeowners on fixed rates set to expire by the end of 2023 are facing monthly repayment increases of about £250 on refinancing to a new fixed deal.
Gary Smith, financial planning director at wealth manager Evelyn Partners, said: “Those who have deals expiring this year face a difficult choice as to whether to fix again or risk a variable-rate deal.
“The former could mean locking in at a relatively high interest rate in order to achieve certainty.
“The latter could mean rising payments in the short-term but possibly lower payments in the medium-term as benchmark interest rates plateau or even start to come down.”
He added: “The danger is that those who are already paying a substantial proportion of their net income in mortgage costs will be stretched by the increased payments on their new deal, and therefore reduce monthly saving – whether that is cash, investment Isa or pension – or even eat into their savings.”
Mr Smith said some borrowers may consider extending their mortgage term, which could potentially mean paying off their home loan into their retirement.
For some homeowners, it could mean putting off their retirement to a later date, he added.
How to choose the best mortgage deal
There are lots of factors to consider when searching for the best mortgage deals.
The amount you can borrow and interest rate are important factors but you should also consider the type of mortgage.
Do you want the certainty of a fixed-rate mortgage or the flexibility of a tracker that could get cheaper rates and typically doesn’t have exit fees?
There are mortgage calculators online that will let you compare the monthly cost of a mortgage based on the interest rate and any fees.
A lender or mortgage broker will be able to offer advice on the best type of mortgage deal to meet your needs.
Shop around for the best mortgage deals rather than opting for the first bank you see.
Remember a bank or building society will only offer its own options which limits your choice.
You can also use a comparison website to find deals across the market based on your level of deposit and whether you want a fixed or variable rate.
A comparison website will usually let you search for all types of home loans such as for first-time buyers or the best buy-to-let mortgage deals.
This will give you an indication of what is on offer but you will need to do the application yourself.
Some lenders may not be on comparison websites so it is worth searching directly online as well.
Alternatively, a mortgage broker can help search the market more widely and find the most suitable deals for you.
When should I start looking for a new mortgage deal?
Getting your mortgage prepared when buying your first home can make you more attractive to sellers as they can see you have finance in place and are serious about proceeding with a purchase.
It can take a couple of hours or a few days in more complicated cases to get a mortgage in principle.
This gives you an idea of how much you can borrow, and you can usually get a decision within hours or a few days in more complicated cases.
You can do a full application once you have had an offer on a property accepted.
It can take four to six weeks for a mortgage to be approved depending on how much information a lender needs.
A seller will usually wait, once they have accepted your offer, for you to get your mortgage sorted.
But having an idea of what you can borrow in advance will speed up your purchase and ensure you don’t miss out on your dream home.
More preparation is needed if you are remortgaging.
A lender will move you onto a more pricey SVR once your mortgage deal comes to an end.
That means you could have been on one of the best mortgage deals and suddenly your monthly repayments will increase.
You should start looking for a new mortgage around three to six months before your deal ends.
It can take at least two months for a remortgage to complete so you need to allow time to find a new deal and make the application.
Mortgage offers typically last up to six months, so you could start early if you spot a good rate and time the start date so you avoid any exit fees and move smoothly onto the new rate once your deal expires.
What should I do if I am struggling to pay my mortgage?
As soon as you think you will have a problem with your monthly mortgage repayment – whether you can’t pay anything, can’t pay all of your monthly payment or can’t pay it on time – get in touch with your lender straight away.
Working out a realistic budget might make a big difference to your spending, and will help you see exactly what you might be able to afford in terms of mortgage payments.
It makes sense to prioritise payment of your essential household bills like your mortgage, other loans secured on your home, council tax, fuel bills and food.
There are lots of budget planners available online which provide a framework to work out what you are spending each week or month.
Once you approach your lender, they may be able to change the terms of your mortgage to help make it more affordable to you.
This is why it is very helpful to have already drawn up a budget, so you can tell the lender what you can realistically afford.
You can also get free one-to-one debt counselling help from Citizens Advice, StepChange or National Debtline.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk
