Homeowners who need to remortgage this year and lock in to a new interest rate will see their short-term financial resilience hit nearly four times as hard as borrowers whose mortgage terms stretch into 2024 and beyond.
For those borrowers with refinancing on the near horizon, their savings and debt resilience scores will drop by around 3 percentage points, according to Hargreaves Lansdown’s Savings & Resilience Barometer with Oxford Economics.
This is compared to those mortgage borrowers with refinancing dates further into the future, whose resilience will drop by less than 1 percentage point.
“Those who need to remortgage this year face doing so at significantly higher interest rates, which is going to wreak havoc on both savings and debt,” said Sarah Coles, senior personal finance analyst at Hargreaves.
In its report, Hargreaves Lansdown said that although mortgage rates have begun to fall back in light of developments in the gilt markets, they remain well above levels that were enjoyed by households in the first half of 2022.
The average two-year fixed rate was 5.79 per cent in January, according to Moneyfacts, and a year earlier, it was 2.38 per cent. Some brokers are predicting 4 per cent fixed rates by year-end.
With mortgage borrowers facing such different futures depending on their refinancing timelines, Hargreaves said this will “create a lottery among homeowners with those who are fortunate enough to avoid refinancing in 2023 facing much lower borrowing costs than those who will need to refinance and first-time buyers”.
Falling house prices will also take a toll, according to Coles, but she said the severity will depend on just how far and fast prices fall.
Hargreaves predicts a fall of 10.4 per cent during the year, but also models for worse conditions, which could mean an 18 per cent drop.
“It won’t just affect people’s confidence and immediate financial position, it will also damage their longer-term plans, and the scores for being on track for a moderate retirement will fall 1.4 points for homeowners – compared to 0.2 points for renters,” said Coles.
“The falls are particularly striking among Gen Z and Millennial homeowners, who tend to have borrowed more to buy when house prices were higher.”