According to research from Hargreaves Lansdown, millions of UK homeowners are in for a remortgage nightmare.
Two in five homeowners with mortgages believe their payments haven’t increased since interest rates started to rise, according to data from a 2,000-person Opinium survey conducted for Hargreaves Lansdown in May 2023. This is because so many individuals have fixed-rate mortgages.
Nearly 50% of homeowners (48%) believe they would struggle even with a small increase in their monthly payments of £150.
One in five people report that their monthly payments have increased by more than £200 in the last 18 months, and 16% of respondents—21% of whom are over 55—are already having trouble making their mortgage payments.
More than three million individuals are waiting for a remortgage nightmare, according to Sarah Coles, head of personal finance at Hargreaves Lansdown. They have been protected from the misery of rate increases thus far by a fixed mortgage, but when their contract expires, they will be hit by the full impact of the increases all at once.
“Anyone whose deal expires in the next year will see an average increase in monthly payments of £192, but nearly two thirds of people said this would put them in financial difficulty.”
The ONS estimated that 1.3 million fixed deals, the majority of which were under 2%, would expire in 2023. Currently, the cost of a two-year fixed mortgage is about 5.5%. For hundreds of thousands of borrowers, it might be disaster if rates don’t drop before they have to remortgage.
Coles notes that people with large mortgages would have the biggest increases in payments. This affects more than just individuals with higher incomes who purchased more costly homes; younger buyers who made their purchases more recently when prices were higher will also feel the true effects of this.
The hikes that have already affected people between the ages of 18 and 34 “show this. One in four (24%) people claim that their monthly payment has increased by more than £200.
“Anyone who purchased after the rate increases in the late 1980s won’t have experienced raises this quickly before, so there’s a chance they won’t have taken it into consideration at all.
On the plus side, Coles claims that their mortgage company has a very good chance. Banks were compelled by affordability calculators to determine whether borrowers could still pay their mortgages if interest rates increased. There’s a good probability they can afford larger payments if their situation hasn’t changed considerably since then.
“The problem is that because salaries have lagged so far behind inflation, their situation may have worsened. They were a full 2% behind in March. There may not have been much money left for a mortgage shock after paying for groceries and utility costs, according to the expert.
The HL Savings & Resilience Barometer examined how serious financial issues could become after a remortgage in March. It examined the crucial point at which mortgage costs reach 25% of household income after taxes, which is when households are thought to be in danger of missing their mortgage payments.
It was discovered that 2 million households would be in danger by the end of 2023. Additionally, it was discovered that 650,000 of these people will not have sufficient savings to fall back on, and that 347,000 of them would not only not have sufficient savings but will also already be spending more than they are receiving, placing them at grave risk.
According to Coles, there is still a possibility that the market is overreacting and that rates will drop once more. Large cuts in mortgage rates, however, could necessitate anticipation of a Bank of England cut, which is currently not anticipated until 2024.
Even then, it may take some time before mortgage payments start to decline significantly because they are predicted to do so much more gradually than they did in the past.