Mortgagees in a fix in 2023 – as 1.4 million pay extra £250 a month more

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the publication of an ONS article on impact of rising housing costs, showing mortgagees in a fix in 2023 – as 1.4 million pay extra £250 a month.

Key points from publication:

• • Over 1.4 million people will remortgage onto a higher rate this year. 57% of those hunting for a new deal in 2023 are currently paying less than 2%, and current deals are closer to 6%.
  • The average remortgager will pay £250 a month more on their new fixed rate deal.
  • Should you revert to the SVR?
  • Renters are even worse off, spending 24% of their outgoings on housing – compared to 16% for mortgagees.

Sarah Coles says:

“1.4 million mortgage borrowers are in a fix that’ll set them back an extra £250 a month by the end of the year. They’re coming to the end of fixed rate deals – most of which are under 2% – and face fixing at as much as 6%.

“It means either paying more for years – or reverting to a sky-high SVR while they wait for rates to fall. But while times are tough for borrowers, they’re even harder for renters.

“It’s going to come as a particularly unpleasant shock for those currently paying particularly low rates – and people who have borrowed bigger sums of money for more recent purchases. If the rate on a £100,000 repayment mortgage rose from 2% to 6%, monthly costs would rise £220 to £644. With a 300,000 mortgage, they’d rise £661 to £1,933.

“It’s why the HL Savings & Resilience Barometer, out today, shows that Generation Z and Millennial homeowners are going to be hit particularly hard – with their savings dwindling and consumer debt mounting. They’re more likely to have bought more recently, when house prices were higher, so will have bigger mortgages to finance. Many will only ever have borrowed at a time of rock-bottom rates, so they’ve never faced mortgage payments on this scale. Covering their monthly payments will mean some spend their savings, while others fall into more debt.

“For those whose fixed rates end in 2024, there’s better news. Not only are mortgage rates likely to have dropped back by then, but also rates that were fixed five and two years earlier were a bit higher, so more of them are already paying more than 2%.”

Should you revert to the SVR?:

“If your fixed mortgage is expiring, the question you’re bound to be wondering about is whether you should remortgage now, or join those reverting to the SVR and waiting for fixed rates to fall. This is widely expected over the coming months, and could save substantially on mortgage payments.

“However, this is a gamble, because rates are forecast to keep rising in the short term, so those SVRs will get more expensive. Already variable rate mortgages are at their highest in a decade, with some topping 7%, and things could get even more painful. If you hang around for too long at this rate, you could end up spending so much over the months that you wipe out any savings from fixed mortgages rates dropping. Your decision whether or not to fix now will depend on how important certainty is to you, and whether you can afford to gamble with something as important as your mortgage.”

Renters in even more trouble:

“Life is even harder for renters, one in four of whom say their rent has been hiked in the past six months.

“On average they are up 4%, but rent rises hit particularly hard, because they account for so much of people’s incomes.

“In the year to March 2021, renters spent £106.50 a week on rent (after benefits), or 24% of their weekly spending. Mortgage holders spent more – at £140.80 a week –  but it only made up 16% of their weekly spending.

“To make matters worse, those on lower incomes spend an even higher proportion on housing.

“It means it doesn’t take a huge percentage increase in rental costs to put households under horrible pressure.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay