Fixed RateJun 5 2023

Remortgage ‘catastrophe’ expected as fixed rate deals finish

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Remortgage ‘catastrophe’ expected as fixed rate deals finish
Almost half of those with a mortgage say they'd struggle if their monthly repayments rose by as little as £150

People on fixed rate mortgages could face “catastrophe” when those deals come to an end, research from Hargreaves Lansdown has suggested.

The research explained that, after 12 consecutive interest rate rises from the Bank of England, there is a cumulative increase of 4.4 per cent. But half of individuals on fixed rate mortgages have not felt the brunt of the hikes just yet.

Hargreaves Lansdown head of personal finance, Sarah Coles, explained: “There’s a remortgage nightmare lying in wait for more than three million people.

“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."

Coles also referenced data from the Office of National Statistics which calculated that 1.3mn fixed deals would come to an end in 2023, most of which were under 2 per cent.

As the average two-year fixed mortgage costs around 5.5 per cent at the moment, Coles stated that, if rates do not fall back before savers have to remortgage, it could spell “catastrophe” for hundreds and thousands of people.

Coles said those with large mortgages would see their payments increase the most with one in five individuals saying their monthly payments have already risen more than £200 in the past 18 months.

   Coles also pointed to additional research conducted by the HL Savings & Resilience Barometer in March which found that by the end of 2023, 2mn households would be at risk of defaulting on mortgage payments.

The barometer also found that 650,000 of these people will not have enough savings to fall back on, and 347,000 of them not only will not have enough savings, but will already be spending more than they have coming in - putting them at critical risk.

Coles also stated: “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.”

There is still a chance that the market is "overreacting", and rates could fall back again, Coles argued, 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.

tom.dunstan@ft.com