According to a think-tank, UK mortgage borrowers will have to undergo painful refinancing over the next few months because two-thirds of the £ 2 billion eventual increase in UK mortgage costs due to higher interest rates have not yet been passed on to them.
This week, the Bank of England increased its main interest rate to 4.5 %, marking its 12th straight increase since December 2021. People with floating mortgage rates will have higher bills as a result of the increase, and those who are nearing the end of their fixed-rate agreement will be more concerned about remortgage.
About half of the 7.5 million mortgaged households with revised interest rates between the fourth quarter 2021 and the end of 2026, according to a report released on Saturday, still had their mortgage rates unchanged.
The think-tank calculated the effect on variable rate and fixed-rate mortgages, as well as market expectations for interest rate changes over the following four years and repayment increases since 2021, to estimate the £ 12 billion increase in mortgage costs over that time.
The richest 40 % of households, who are more likely to live in expensive homes and have mortgages, would be responsible for paying £ 9 billion of the increase, according to the study. However, it also cautioned that because mortgage costs are significantly higher as a percentage of income, lower-income households and first-time buyers would experience greater pressure on their living standards.
People moving on to new fixed-rate mortgage deals over the next year can anticipate seeing annual mortgage costs rise by an eye-watering £ 2, 300, with young families and low - and middle-income households with mortgages facing the biggest living standards hits, according to senior economist Simon Pittaway of the Resolution Foundation.
Between April and December 2023, roughly 1.3 million households will require refix, according to the BoE.
According to the central bank's most recent monetary policy report, monthly interest payments for the typical mortgagor in that group will rise by about £ 200 per month if their mortgage rate rises by 300 basis points.
According to brokers, borrowers who value the security of knowing their monthly payments in the future can choose between a two-year fix or more affordable five years. However, if they anticipate that interest rates will decline over the next two years, consumers may choose a tracker mortgage that is connected to the BoE base rate and allows them to make adjustments later, in the event that better deals become available.
That was" a very personal decision ," according to Simon Gammon, managing partner at broker Knight Frank Finance, because it" came with the risk that your monthly payments will increase if the BoE decides to raise interest rates further."
According to data from industry body UK Finance, based on average mortgage sizes, Thursday's interest rate increase means an average monthly increase of£ 24 for the 8 % of borrowers on tracker mortgages, but a£ 417 monthly jump when the increases from 2021 are included.
The average monthly payment for the 9 % of borrowers with a standard variable rate— the most expensive option offered by lenders — will increase by £ 15 on average, but it will rise by £ 267 when previous rate increases are taken into account.
Mortgage brokers downplayed the possibility of borrowers being compelled to use SVRs by citing the rise in product transfer mortgages, which allow lenders to offer new deals after the customer's fixed term expires.
Even if people's circumstances had changed, Ray Boulger, an analyst at broker John Charcol, claimed that" they can still get a product transfer in almost every case." .... Therefore, if someone uses SVR, it's typically by choice or most likely by inertia.
