Chances are that you will have seen the news headlines in recent weeks – inflation remains way above the Bank of England’s target rate of 2%, meaning that interest rates are continuing to rise for far longer than originally expected. This is ultimately impacting mortgage rates making the cost of home ownership even more expensive, and that’s on top of contending with the current Cost-of-Living crisis.
A challenging market
According to Moneyfacts1, the interest rate on the average 2-year fixed-rate mortgage deal has now increased to 6.01%, and with 5-year fixed deals not far behind at 5.67%, on average. This means that homeowners who are remortgaging this year are set to pay potentially hundreds of pounds more each month on mortgage repayments compared to their older deals, brokered when rates were considerably lower.
Analysts are now forecasting that the situation may get worse next year, with the average household remortgaging in 2024 set to pay up to £2,900 more per year on mortgage repayments due to the increased rates2.
What’s behind these increases?
As you may have seen, The Bank of England has consistently increased Interest Rates since 2021 in an effort to reduce consumer spending and increase saving, to counter the high levels of inflation across the UK economy, which has been especially noticeable in the increased prices for everyday groceries and energy bills.
However, the increase in interest rates does not appear to be helping curb inflation as quickly as experts forecast2, which has now started to drive a round of increases in mortgage rates, as many key lenders have been withdrawing their old products and re-launching with higher rates.
More challenges lay ahead
There is a bleak outlook to the market right now, especially as the Bank of England confirmed that over 1.3m households were due to remortgage their properties before the end of 2023, and will experience the shock of the new higher rates, having previously taken out a mortgage when rates were around 2% or lower3.
To give an example of what this can feel like, the average mortgage holder is looking at a £200 increase in their monthly repayments if their mortgage goes up by 3 percentage points, according to the Resolution Foundation think tank research on the topic.3
What can you do?
The most important thing is not to stick your head in the sand. If you think you may have some difficulties in paying the mortgage, then we advise that you contact your lender immediately. If you fall behind your mortgage payments by 90 days, then your lender can start proceedings to repossess the property, however there are avenues of assistance that can prevent you reaching this stage.
By speaking to your lender, you may be able to make a plan for the payments you owe, or even to create a forbearance agreement with your lender, to allow a short-term solution to catch up on your payments.
We recommend that as well as speaking to your lender if you are struggling, please do not hesitate to reach out to us and let us know if you have any challenges, we can take a look at your specific circumstances and offer practical advice that can hopefully assist in your situation.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Sources
- BBC (2023) Mortgage rates: Average two-year fix now above 6%. Available at: https://www.bbc.co.uk/news/business-65931132 (Accessed 19th June 2023)
- SkyNews (2023) Mortgage crunch: Annual repayments set to rise by almost £3k next year. Available at: https://news.sky.com/story/annual-mortgage-repayments-set-to-rise-by-2-900-on-average-next-year-says-think-tank-12904111 (Accessed 19th June 2023)
- SkyNews (2023) Mortgage misery: What is causing the crunch, will it get worse and what can you do if you are struggling? Available at: https://news.sky.com/story/mortgage-misery-what-is-causing-the-crunch-will-it-get-worse-and-what-can-you-do-if-you-are-struggling-12904191 (Accessed 19th June 2023)
All the information in this article is correct as of the publish date 29th June 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.
