UK Edition
Nearly two million homeowners will be hit with “remortgage rate shock” next year as interest rates soar, new data has shown.
Half a million could see their repayments quadruple after they took out short-term deals at record-low rates which expire in the next 12 months.
The enormous surge in property purchases during the post-lockdown race for space – and the rush to take advantage of lower stamp duty – has meant 1.8 million homeowners’ fixed-rate mortgage deals end in 2023, according to UK Finance, a trade body.
This is a 36pc increase compared with 2022 and 53pc above the 1.18 million remortgage deals that ended in 2019. The number of homeowners exposed to huge increases in mortgage costs will be the highest since 2017, when UK Finance’s records began.
Experts have warned the sudden increase in higher debt costs poses a risk to the housing market – and the economy.
Soaring interest rates will mean these homeowners will see huge jumps in their monthly bills when they refinance at higher rates – and could find that their homes are no longer affordable.
Half a million homeowners could see their mortgage rate quadruple just as they stomach higher energy bills and the ongoing burden of high inflation.
Some 500,000 homeowners took out two-year fixed rate loans when the Bank Rate was a record low 0.1pc and mortgage deals as low as 1pc. However, the Bank of England has since increased its rate five times and it now stands at 1.25pc. It is expected to rise again on Thursday, either to 1.5pc or 1.75pc. Research firm Capital Economics has forecast that it will hit 3pc in 2023.
Andrew Montlake, of mortgage broker Coreco, warned homeowners face a “payment shock” if interest rates continue to rise just as they come off low rate fixed deals.
This year, the combined impact of inflation and higher mortgage rates has meant homeowners’ disposable income has fallen by about a quarter, according to UK Finance data. Remortgaging in 2023, when interest rates will be higher, will bring an even greater blow.
Lewis Shaw, of Shaw Financial Services, another broker, said the jumps in payments could be so steep homeowners could be pushed to sell up.
“If someone is getting to a point where they can’t afford to live in their own home, they may want to consider selling. I would rather sell than face the years of hardship and consequences of missed mortgage payments and adverse lenders,” he added.