My fixed rate mortgage is coming to an end – how high will the interest rate go?

More than half of homeowners will reach the end of their fixed-rate mortgage in the next three years, and rising interest rates mean many fear they won’t be able to pay their bills.

With mortgage rates still rising, which were raised in the first nine months of this year due to the Bank of England’s slow base rate rise and then the Chancellor’s mini budget, the impact on household finances could be severe.

About 55 percent of homeowners will finish their existing fixed-rate deals and need to remortgage or move to their lenders’ standard variable rate within three years, according to Market Comparison.

It comes as the Bank of England estimated that around 800,000 households will struggle to repay their mortgages in 2023 – up from around 500,000 last year and the highest since the run-up to the 2008 financial crisis.

Bigger bill: Rising mortgage costs threaten household finances as borrowers who exit a fixed deal face interest rate shock

Bigger bill: Rising mortgage costs threaten household finances as borrowers who exit a fixed deal face interest rate shock

In just over two years, the average rate for a two-year fixed mortgage has increased 4.08 percent from 2.38 to 6.46 percent, according to Moneyfacts.

This means the borrower would pay an extra £460 a month on a £200,000 a month mortgage to £1,345, which is an extra £5,520 a year.

And some could face steeper hikes, as the cheapest mortgage rates hit historic lows last year. In September 2021, Nationwide issued its lowest rate ever of 0.87 percent for borrowers with a 40 percent deposit for a two-year fixed deal.

As a result of these spikes, 89 percent of homeowners who are close to the end of their fixed-rate deal said they are concerned about increasing mortgage payments.

Of those, nine out of 10 say they fear the increases will affect their ability to pay daily household bills.

The appeal of fixed rate mortgages is that homeowners can be sure of the amount of their monthly payments for the duration of the deal.

By fixing the rate, you are protected from higher interest rates in the future until the fixed period expires.

Fixed-rate mortgages are traditionally popular with homeowners, and a market comparison found that 75 percent of those surveyed were in this type of deal.

While three-quarters (71 percent) said they would opt out of a mortgage when they reached the end of their fixed-term deals, about 15 percent said they would not remortgage.

This could mean that they would face higher repayment costs if they were moved to the lender’s Standard Variable Rate (SVR) which is usually higher than deals offered for fixed mortgages.

However, with term mortgage rates still rising, homeowners now face a difficult choice, as some term deals have recently moved up to a rate above average SVR.

On Oct. 7, the average SVR was 5.44 percent among the five largest lenders, but the two-year fixed rate average has now reached 6.46 percent. Lenders can increase their SVR at any time, however,

Alex Hasty, Director at Compare The Market, said: ‘We understand it’s an uncertain and challenging time for many homeowners, as SVR and term rates rise, the number of mortgage products fluctuates, and the cost of living crisis deepens. Those who come close to the end of a fixed-rate deal are likely to face a major repayment shock, even if they remortgage.

For these homeowners, it’s better to rearrange the mortgage than switch to a higher lender’s standard variable rate.

“It’s important to compare mortgage products online – checking what deals are available now and staying aware of what’s going on in the market will help you budget and save for the future.”

Payment Pressure: As a result of rising prices, 89% of homeowners who are close to the end of their fixed deal said they are worried about increasing their mortgage payments

Payment Pressure: As a result of rising prices, 89% of homeowners who are close to the end of their fixed deal said they are worried about increasing their mortgage payments

You can do this with the This is Money mortgage finder, powered by the broker L&C.

David Hollingworth, mortgage expert at L&C added, “A rapid increase in mortgage rates will understandably surprise borrowers and this clearly creates significant anxiety as households deal with rising costs of living and face large increases in monthly payments.

Most are eager to fix their rate so they know where they are and at least have some certainty about what is likely to be the most outgoing individual. As a result, many borrowers are now looking forward to when their current deal will expire, trying to get ahead of any further raises and secure a deal now.

I expect that we will continue to see borrowers take a safety-first approach to setting their rates. There is still an expectation of a higher prime rate which will eventually feed into the lender’s standard variable rates.

What will happen to housing prices?

Oxford Economics expects mortgage rates to peak later this year, but remain high through 2023.

Oxford Economics expects mortgage rates to peak later this year, but remain high through 2023.

Rising interest rates and the subsequent impact on mortgage affordability are causing continued uncertainty in the housing and mortgage markets.

On Oct. 10, rating agency Fitch predicted that the core rate would rise to 4.25 percent by December 2022 and 5.0 percent by the next second quarter.

Earlier in the week, analysts at Capital Economics said house prices would fall by about 12 percent by mid-2024 as a result of a sharp increase in mortgage rates, while Oxford Economics put the figure down from 10 to 13 percent.

The latest Halifax House Price Index showed UK house prices fell in September, down 0.1 percent from August, leading experts to speculate that a market downturn is on the way.

A new report from Oxford Economics says house prices are inflated to the highest level since 2000 when the company first began tracking data.

In 2007, home prices were overvalued by 25 percent, the second highest level of the past two decades according to the data. Today, that number is much higher than 37 percent.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..

Banks and building societies are still lending and mortgages are still being accepted with applications accepted.

However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.

This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.

What if I need to re-travel?

Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.

Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.

Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I’m buying a house?

Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.

Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.

How to compare mortgage costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.

Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check out the best fixed rate mortgages you can apply for

Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.

Leave a Comment