Hundreds of thousands of homeowners have been warned they could pay an extra £2,900 a year more for their mortgage from next year if interest rates continue to rise.
The Resolution Foundation predicts that the Bank of England’s base interest rate could peak at nearly six percent by next year meaning borrowers face even bigger increases in their mortgages.
Annual repayments for those re-mortgaging next year are set to rise by £2,900 on average – up from £2,000.
According to research by the think tank, around 800,000 people are expected to remortgage next year so will be impacted by the high rates.
With the rises, the Resolution Foundation predicts the average two-year fixed rate deal will hit 6.25 percent later this year and will not drop below 4.5 percent until after 2027.
The Bank of England is set to announce its next base rate with experts expecting another rise.
Interest rates have risen 12 consecutive times since 2021 to try to curb inflation which sits at 8.7 percent.
MoneyFacts.co.uk revealed that a typical two-year fixed rate mortgage had breached the six percent mark for the first time since the infamous “mini-Budget” last September.
Ben Thompson, Deputy CEO at Mortgage Advice Bureau said: “Homeowners across the UK will be feeling concerned about where interest rates are now, and where they might be heading in the next six months.
“While the size of interest rate hikes seems to be smaller than they were at the start of the increase cycle, further increases in rates are likely as policymakers try and take back the reins on inflation.
“Those looking to remortgage are faced with a challenging and volatile market. Nevertheless, there are some actionable steps that homeowners coming towards the end of their current fixed-rate deals can, and almost certainly should take.”
Get into the details
He explained that finding out exactly when one’s current mortgage rate is set to end, their outstanding balance, and how much they currently pay each month is key.
From here, people can research what rates are currently available, and what their options might be. Some homeowners on fixed deals will have read about the previous 12 rate rises but, until now seen no change to their mortgage repayments.
Therefore, for anyone whose mortgage deal is soon coming to an end, it’s crucial to know and come to terms with how much repayments are likely to go up by.
Make savings where possible
He also encouraged people to review their finances and see if they can make any additional savings in anticipation that their repayments will go up.
The Bank of England has reported that households coming off fixed deals this year will see repayments increase by an average of £250, so building a buffer now might help people to meet those higher repayments.
Get in early
Mr Thompson said: “With interest rates likely to go up before they come down, consider locking in a new rate with your lender early. Many lenders will allow you to move onto a new rate three or six months before the official end of your current rate.
“However, be aware that if mortgage rates do come down, you might find yourself on a higher rate than that available on the market. The important thing here is to get the facts from your lender, so you know what options are available to you.”
Know your credit score
He stressed the importance of people knowing their credit scores as they’ll need to undergo affordability checks and lenders will look at this. This can impact how much they will lend someone and even the interest rate they offered. It is important people know what their score is and, if required, do as much as they can to improve it.
Britons can speak to a mortgage adviser who can access deals from circa 100 lenders, not just one.
He added: “It’s crucial to shop around and speak to an adviser who has access to a variety of mortgage products. The best time to do this is a few months in advance, most typically at least 6 – in fact, the sooner, the better.
“Starting the process early will make it easier to anticipate what’s coming and gives your adviser time to find a solution that works for you and your unique circumstances. Remember that you aren’t alone in this, and there are people to help you.”