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Mortgage rates double for homeowners, adding thousands to bills

·3-min read
A woman shaking money out of a house
A woman shaking money out of a house

Homeowners coming to the end of a fixed-rate mortgage will have to pay £1,344 a year more when refinancing, as interest rate rises cause costs to soar.

Buyers who purchased homes or remortgaged with substantial deposits in 2020 will see the biggest jumps in payments following the Bank of England’s decision to raise interest rates to 1.25pc, according to Hamptons estate agents.

A homeowner who bought an average home with a 25pc deposit using a two-year fixed-rate mortgage that expires this month will see their monthly bills jump 16pc to £811 when they remortgage. This is because rising interest rates have pushed up their typical mortgage rate from 1.42pc to 2.81pc. The extra £112 a month will cost homeowners £1,344 more per year.

Costs are rising on a daily basis. This bill for remortgaging today is £252 more than it would have been before last week’s 0.25 percentage point Bank Rate rise. Dozens of mortgage lenders have since passed on increased rates to customers.

Many of those who bought with smaller deposits will also see costs rise. Buyers who purchased with 15pc deposits two years ago will have to pay an extra £1,248 per year compared to what they were paying on their old deals. Monthly payments have gone from £825 to £929, equivalent to a 13pc rise.

David Fell, of Hamptons, said more than half of buyers coming to the end of their mortgage deals this month will face higher rates.

“Essentially, anyone who isn’t a first-time buyer that is coming to the end of a two-year deal is likely to see their monthly mortgage payments rise,” he said.

According to UK Finance, the banking trade body, 1.3 million borrowers will come to the end of their fixed-rate deals at some point this year.

However, those who purchased with 5pc deposits, will see their monthly mortgage payments fall by £30. This is because the rates for low-deposit mortgages were exceptionally high during the pandemic, despite the record low Bank Rate. These homeowners will see their mortgage rates drop from 3.17pc two years ago to 2.88pc.

Homeowners who took out five-year fixed-rate deals will also see their costs fall. This is because the mortgage rates five years ago were closer to today’s rates, and because homeowners on these longer-term deals have had more time to make repayments and reduce their overall debt.

An average homeowner who took out a five-year fixed-rate deal with a 25pc deposit, will pay £504 less per year when they remortgage this month. But this saving is shrinking as the Bank Rate rises. If they had remortgaged before the most recent rate rise, they would have saved an extra £204. Hamptons’ calculations were based on a buyer taking out a 25-year mortgage to purchase an average-priced home and account for the additional equity accrued over the fixed-rate period.

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