More than 1.4 million households due to renew their mortgage deals this year will face the prospect of increased repayments as a result of the sharp rise in interest rates.
This is according to data released today by the Office of Nationals Statistics (ONS) which revealed in the first three months of 2023 alone, 353,000 fixed rate mortgages will be due for renewal.
And it revealed the number of fixed rate mortgage deals coming to an end in 2023 will peak between April and June 2023 at 371,000.
All these deals will have been taken out before the recent spate of interest rate hikes at rates at below 2%.
Since then, the base rate has risen from 0.1% in December 2021 to 3.5% in December 2022 whilst turmoil in the mortgage market in Autumn led to further mortgage price hikes.
This has resulted in the average two-year fixed rate reaching 5.79%, according to Moneyfacts. A year ago the typical rate for a deal of this kind was 2.38%
Karen Noye, mortgage expert at Quilter feared mortgages could ‘rapidly become unaffordable for many people’ – particularly if they still have a high loan-to-value.
“And this,” she added, “is all in addition to eye-watering heating bills and food costs soaring, which will serve to make this winter in particular and the rest of this year difficult for millions.”
Tracker mortgages – are they an option?
Noye said those looking to refix may well be more tempted to opt for a tracker mortgage – which have rates that go up and down according to external factors such as the Bank of England base rate – rather than fix at the current levels,
She said this may seem particularly attractive in light of the fact the Prime Minister Rishi Sunak announced inflation was likely to half this year, which could mean that the Bank of England would not need to continue hiking interest rates.
She explained lenders have already made changes to mortgage deals to reflect this. For example, Halifax was offering a two-year tracker for homebuyers with rates between 4.09% and 4.59%. This compared to fixed rates of 5.12% to 5.82%.
But she warned: “While borrowers may feel a tracker rate is the better option, it is important that they are aware that tracker rates will likely be impacted by any further Bank of England rate rises and could therefore surpass the fixed rates currently on offer.
“Ultimately, it is important to seek professional mortgage advice where possible to help you assess what the best option is for your personal circumstances.”
Gary Smith, financial planning director at wealth manager Evelyn Partners, said tracker deals would mean borrowers could experience rising payments in the short term but possibly lower payments in the medium term as benchmark interest rates plateaued or even started to come down.
“Certainly it seems that for those who desire some certainty over repayments, a two-year fix might make more sense so that if rates come down in the next year or two – as seems likely – they can step on to a better deal,” he added.
Extending your mortgage term
Smith said others may consider negotiating a longer-term mortgage in excess of 25 year, and for many that could take repayments into retirement age for one or both of the borrowers.
He added: “This can be a reasonable move either if there is a plan to overpay in future years before retirement, or if the borrowers are comfortable that they can continue to repay a mortgage after retiring without significantly impacting their living standard – in which case this outgoing must be factored into their financial plan for retirement.
“For some of course, alternatively, it could mean putting off retirement to a later date.”
