Mortgage timebomb: are your payments about to shoot up?
Around 350,000 homeowners are facing a mortgage timebomb this year, with their mortgage costs set to jump by hundreds - or in many cases thousands - of pounds a year when their existing deals end.
Analysis by the bill management app Nous found that these borrowers locked into five-year fixed rates as low as 1.88% back in 2020. Since then, interest rates have risen substantially, with current five-year fixes now averaging nearer 5%. That means someone with a £200,000 mortgage could see their payments increase by an extra £333 a month or £3996 a year when they come to remortgage.
Greg Marsh, the chief executive of Nous, said: “Hundreds of thousands of homeowners are in for an unpleasant shock this winter. The era of ultra-cheap mortgages is over. For these households, it’s leaving them thousands of pounds a year worse off.”
So what should you do if your fixed rate is finishing in the next few months? A spokesman for L&C said: “Don't panic - but don’t stick your head in the sand either. Check when your deal ends – the month and year. You can start looking for a new rate up to 6 months before your current deal ends. Compare across the market, don’t just accept your lender’s renewal rate. Your current lender might be convenient but will not necessarily be the cheapest or best option for you.”
If you’re able to, you might also want to try to reduce your mortgage balance as much as possible before you remortgage. If you’re currently tied into a fixed rate deal, most lenders will allow you to overpay up to 10% of your mortgage balance per year.
Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “Existing borrowers emerging from ultra-low fixed deals face significant jumps in monthly repayments when they remortgage unless they have managed to clear a chunk of their outstanding balance. For those with deals expiring in the next few months, increasing monthly repayments in advance could help to ease the transition to higher mortgage costs. In turn that will reduce the capital owed – softening the hit to the household budget.”
If you’re worried about locking into another five-year fixed rate when rates are high, you might want to consider a shorter-term fixed rate. That way, if rates fall over the next few years, you’ll hopefully be able to lock into a more competitive rate when your current deal ends, although of course there are no guarantees.
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A spokesman for Moneyfactscompare.co.uk said: “A three-year fixed mortgage could offer a compromise between the flexibility of a shorter initial fixed term and the security of locking in a fixed rate for five or more years. While there are fewer products to choose from in this sector, there are still plenty of attractive deals to be found.”
According to Moneyfactscompare, the lowest three-year fixed remortgage rate is currently from MPowered Mortgages and is priced at 3.92%, but only if you’re looking to borrow no more than 60% of your property value. There is a £999 arrangement fee and this particular deal is only available via brokers.
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