Up to 38,000 people are in a challenging situation
Two years after Liz Truss’s disastrous mini budget, new analysis from MPowered Mortgages indicates that over 38,000 homeowners will face an average increase of £320 in their monthly payments when they remortgage this month.
Data from the Bank of England shows that borrowers who secured a two-year fixed rate mortgage in August 2022 locked in an average interest rate of 2.59%, just before the mini budget triggered a sharp rise in rates.
According to MPowered Mortgages, the UK’s six largest lenders issued loan illustrations to 38,641 borrowers during that period. As these fixed rate periods expire this month, those homeowners are expected to encounter interest rates nearly doubling if they remortgage with a high street lender.
Currently, the average interest rate offered by the same lenders on new two-year fixed rate mortgages is 5.08%, nearly twice the rate of two years ago.
For the average loan size of £243,000, those who secured the 2.59% rate two years ago have been paying £1,101 per month on a 25-year repayment mortgage. Assuming they have paid off £13,000 of the principal and maintain the loan term at 23 years, their monthly payments will rise to £1,421 after remortgaging, resulting in an increase of £320 per month.
“Up to 38,000 people are in a challenging situation as their two-year fixed rate mortgages come to an end this month,” said Stuart Cheetham (pictured), chief executive of MPowered Mortgages. “While they benefited from lower rates initially, remortgaging now could lead to significantly higher payments.”
Cheetham, however, noted a silver lining, pointing out that the Bank of England’s recent base rate cut has prompted some lenders to lower interest rates.
“Since the start of August, average two-year fixed rates have dropped from 5.17% to 5.08%, and we anticipate further reductions as competition among lenders increases,” he added.
MPowered Mortgages has already reduced its mortgage rates twice last week, reflecting the downward trend in swap rates influenced by both the Bank of England’s decision and economic developments in the US.
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