New data shows that nearly two million homeowners will suffer a “remortgage rates shock” in the next year, as interest rate rises.
After taking out short-term deals at record low rates that expire in 12 months, half a million could see their monthly payments quadruple.
According to UK Finance, a trade organization, the massive increase in property sales after the lockdown – and the rush for lower stamp duty – has led to 1.8 million homeowners having their fixed-rate mortgage deals expire in 2023.
This is 36pc more than in 2022, and 53pc more than the 1.18million remortgage agreements that were concluded in 2019. This will be the largest number of homeowners who are subject to massive increases in mortgage prices since 2017 when UK Finance began keeping records.
Experts warn that the sudden rise in debt costs is a danger to the housing market and economy.
Rising interest rates could lead to homeowners seeing huge increases in their monthly bills if they refinance at higher rates. This could make their home unaffordable.
Half a million homeowners could see the mortgage rate quadruple, just like they have higher energy bills and the continuing burden of high inflation.
When the Bank Rate was at a record low of 0.1pc, and mortgage rates as low as 1pc, approximately 500,000 homeowners took out 2-year fixed-rate loans. The Bank of England increased its rate five more times, to 1.25pc. It is expected that it will rise once again on Thursday to either 1.5pc or 1.75pc. Capital Economics, a research firm, predicts that it will reach 3pc by 2023.
Andrew Montlake, a Coreco mortgage broker, said homeowners could be subject to a “payment shock” should interest rates rise at the same time they are coming off low-rate fixed deals.
According to UK Finance data, homeowners’ disposable income fell by around a quarter due to the combination of higher mortgage rates and inflation. In 2023, interest rates will be even higher so remortgaging will come with a greater blow.
Shaw Financial Services’ Lewis Shaw, another broker, stated that the rises in payments could cause homeowners to be pushed to buy up.
“If someone is reaching a point in life where they cannot afford to live in their home, they might consider selling. He said that he would prefer to sell than deal with the hardships and consequences of missed mortgage payments or adverse lenders.
