While the Bank of England Base Rate may be frozen, those coming to the end of a fixed-rate mortgage term are likely to see the cost of their monthly mortgage repayments climb by hundreds of pounds a month.
Recent research from specialist property lending experts, Octane Capital, found remortgagers could be set to face up to 222 percent increase in bills after two years of Base Rate increases.
Jonathan Samuels, CEO of Octane Capital, commented: “For those approaching the end of a two-year fixed mortgage term, it’s set to be an even tougher start to the year than usual.
“Having originally locked their mortgage when rates were at an all-time low, they now face the prospect of renegotiating their terms following two years of consistent interest rate hikes.”
The property lending experts analysed the latest available data from the Bank of England (November 2023) regarding the average rate of a two-year fixed term mortgage (75 percent Loan To Value).
They examined how this rate has changed over the last two years, and what it means for borrowers who have reached the end of their initial two-year term when it comes to the monthly cost of repaying their mortgage.
The research shows that in November 2021, when the Base Rate sat at a record low of just 0.1 percent, the average buyer would have required a mortgage loan of £200,528 – having placed a 25 percent deposit on the average UK house price, which at the time sat at £267,370.
With the average mortgage rate at the time sitting at 1.53 percent, those opting to make a full monthly mortgage repayment would have paid an average of £805 per month. Meanwhile, those opting to make an interest-only payment would have paid £256 per month.
However, those now coming to the end of their two-year fixed term face a considerable increase in the cost of their monthly mortgage payments.
While the Bank of England has made three consecutive decisions to hold the Base Rate, it now sits at 5.25 percent, far higher than the 0.1 percent seen in November 2021.
Subsequently, the average mortgage rate for a two-year fixed term currently sits at 5.28 percent – an increase of 3.75 percent in the last two years.
According to Octane Capital, those who reached the end of their two-year fixed term in November 2023 would have paid off £13,374 of their original mortgage loan of £200,528, leaving a remaining balance of £187,154.
Despite needing to borrow less, they will have seen the cost of a full monthly mortgage repayment rise from £805 per month to £1,173 – an increase of £368 per month (+46 percent).
Meanwhile, those opting to make an interest-only payment will have seen the monthly cost of their mortgage repayment climb from £256 per month to £823 – an increase of £568 per month (+222 percent).
Mr Samuels said: “January can be a financially tough time for many households as they struggle to rebound from the increased cost of the Christmas period.”
He said that after two years of consistent interest rate hikes, households “are likely to see the cost of their monthly mortgage repayments increase significantly”.
He added: “For those who may have previously overstretched while rates were favourable, this could prove problematic, to say the least.”
