High interest rates to substantially affect 500,000 households coming off fixed rates
Half a million mortgage holders coming off fixed rates are in for an imminent financial shock in the run-up to the Christmas and New Year holidays, according to consumer watchdog Which?.
Higher interest rates will result in around 500,000 households paying hundreds of pounds more each month compared to their previous deal, with market-leading two-year fixed rate mortgages currently priced at 5.53%.
According to the Financial Conduct Authority (FCA), the average mortgage holder has £147,000 left to pay off. In September 2021, borrowers taking out a two-year fix with 20 years left on their loan would, on average, have paid £770 a month. Today, those in that same scenario would be paying £1,106 a month – a £336 difference, or £4,032 annually.
While the current fixed rates are undeniably high, they have actually gone down in recent weeks due to falling swap rates. Three months ago, Moneyfacts reported that the average rate for a two-year fixed mortgage breached the 6% mark – the highest it has been since December last year. A few weeks later, five-year fixed rates also went above 6%.
Which? said that with average rates for both two- and five-year mortgage deals hovering around 6% and many experts predicting the 15th consecutive Bank of England base rate hike tomorrow, it is unlikely that homeowners whose deals are ending in the coming months will be able to find deals at anywhere near the rate they have been previously paying.
“Mortgage holders can generally lock in a rate up to six months before their current deal expires and can pull out of that deal should they find a better rate elsewhere,” Which? stated in its report. “Homeowners whose fixed deals are expiring by the end of the year should be looking at new deals and how they will affect their finances now.”
The consumer body also called on banks to ensure they are ready to provide appropriate support to customers, ensuring that their customer service support – via phone calls, email, and chat support – is properly staffed and resourced, including during the Christmas holiday period.
It also pointed out that under the FCA’s new Consumer Duty, customers should be supported in a way that meets their financial needs, and companies that fail to do so should expect to face tough action from the regulator.
“The rock-bottom interest rates homeowners enjoyed for more than a decade are firmly behind us, and those who need to remortgage are feeling the full force of the last two years’ worth of rate rises,” Ele Clark, senior money editor at Which?, commented.
“With around half a million mortgage holders’ fixed rate deals coming to an end in the next few months, it’s vital that lenders are offering adequate and fully resourced customer support to help borrowers assess their options.”
Eric Leenders, managing director of personal finance at UK Finance, added that with 47 lenders representing over 90% of the market already signed up to the government’s new Mortgage Charter, help for borrowers should be there when they need it.
“Christmas can really stretch household finances,” Leenders said. “All lenders have teams of experts ready to help anyone who is worried about their mortgage and, as usual, there will be a moratorium on possessions to ensure that people stay in their homes over the festive period.
“Reach out to your lender if you are struggling with your finances – there’s a range of support available that your lender will tailor for your specific circumstances.”