‘Remortgaging nightmare’ down the road for over three million people
Sarah Coles, head of personal finance, Hargreaves Lansdown warned that there was a “remortgage nightmare lying in wait for more than three million people”.
She continued: “They’ve been shielded from the horror of rate hikes so far by a fixed mortgage, and when their deal runs out, they face the full force of the rises in one single hit.
“Anyone whose deal comes to an end in the coming year is set to see their monthly payments increase by an average of £192, but almost two thirds of people said this would cause them financial problems.”
According to a survey by Hargreaves Lansdown, which collated views from around 2,000 people, one in five said that their monthly mortgage payments had already risen by over £200 in the past 18 months.
It continued that there were around 16% of people already struggling with their mortgage payments, which increases to 21% of those aged 55 and over.
However, the research added that two in five with a mortgage said their monthly mortgage payments hadn’t gone up since interest rates had started increasing, but the analyst said this was due to many people being on fixed rate deals.
The ONS has said that there are around 1.3 million fixed rate deals that would end in 2023, and a large swathe of them are under two per cent.
Currently, the average two-year fixed rate is around 5.5%, with Hargreaves Lansdown noting that if rates don’t fall prior to remortgaging “it could spell catastrophe for hundreds of thousands of people”.
Younger people could be more at risk
The firm said that those with large mortgages would see their payments rise the most, which could impact younger people as they purchased when house prices were higher and will tend to need bigger mortgages.
Amongst those aged 18 to 34 around a quarter have said that their monthly repayments have gone up by over £200.
Hargreaves Lansdown added that those who bought after the 1980s, when there were numerous rate hikes, may not be accustomed to rises of this speed and may not have factored into their plans.
However, it noted that mortgage lenders would have done so as affordability calculators are now in place, so if their circumstances change it is more likely customers can stretch to bigger payments.
On the flip side, the firm said that wages falling behind inflations and the rising cost-of-living crisis could mean “there’s little left for a mortgage shock”.
Coles continued: “There is always the hope that rates will fall back by the time you come to remortgage, sparing you the worst of the pain.
“Before the inflation figures were released this month, this seemed to be on the cards, as the market was pricing in one more rise, and fixed rate mortgages looked set to drop. Now the market is pricing in more hikes and mortgage rates have surged.”
She added: “There is still a chance that the market is overreacting, and rates could fall back again. However, large reductions in mortgage costs may require expectations of a Bank of England cut – and at the moment, that’s not on the cards until 2024.
“Even then, they’re expected to come down far more slowly than they increased, so it could take quite some time for mortgage costs to drift significantly lower.”