Mortgage borrowers swallow early exit fees as rate rise fears grow

The average two-year fixed rate has nearly tripled in just a year. It sits at 6.46 per cent today (October 13), up from 2.25 per cent in October 2021, according to Moneyfacts.

An early repayment charge often isn’t the best option.Sophie Foreman, Woldingham Financial Services

Prime minister Liz Truss’ handling of her party’s unfunded tax cuts, which sent gilt yields, swap rates, and mortgage rates soaring after they were announced last month, has been the subject of much criticism.

Yesterday (October 12) in PMQs, she was accused by MPs of “ignoring the chaos” incurred to mortgage holders by her “mini” Budget. 

That same day, broker Riz Malik of R3 Mortgages called for chancellor Kwasi Kwarteng to quit live on Sky News.

Truss has remained steadfast in her view, that interest rates are rising globally, that the government’s £150bn emergency relief package will help ease the strain on mortgage holders, and that the Bank of England is ultimately responsible for interest rates.

Since Kwarteng’s sweep of unfunded tax cuts, the average two-year fix has climbed more than 1.7 percentage points.

As a result of mortgage interest rates’ continued upward trajectories, some borrowers have decided to switch mortgages now for fear of having to stomach even greater rate rises in the coming months.

“We are finding we are receiving a lot more calls about remortgaging and whether clients should be leaving current deals early, potentially resulting in early exit penalties,” said Sophie Foreman, an adviser at Woldingham Financial Services.

“It often isn’t the best option,” she added. Early repayment charges - shortened to ‘ERCs’ - can cost borrowers thousands up front. 

We've seen a marked increase in customers looking to remortgage and secure rates as quickly as possible.Chris Schutrups, The Mortgage Hut

They form part of a borrower’s loan agreement. If a borrower wants to finish a mortgage before the term agreed, a charge is payable.

Founder of The Mortgage Hut, Chris Schutrups, said “for the first time in a long time”, his firm is talking to customers who are looking to pay their ERC to secure a new rate now rather than wait until the end of their fixed rate.

He said an ERC is normally 1 per cent of the amount loaned, but that it can reach 5 per cent.

“We've seen a marked increase in customers looking to remortgage and secure rates as quickly as possible,” said Schutrups.

“As you'll have seen, lenders tend to offer only a couple of hours notice prior to pulling rates, with two large lenders pulling rates with zero notice this week.

“There is a huge amount of uncertainty about interest rates and mixed messages currently in the market. We're seeing the traditional enquiries for moving due to life events remain level, however the more speculative are most certainly adopting a watch and wait view point.”

Due to the sheer number of remortgages currently demanded of lenders, some have moved their product transfer window from three to four months before a rate ends, to six months.

“This allows those who cannot remortgage, for whatever reason, to lock in a new rate with their existing lender earlier providing the peace of mind they need,” director of Mortgage Confidence, Jo Jingree, explained.

ruby.hinchliffe@ft.com, jane.matthews@ft.com