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‘My mortgage will cost me £600 a month more next year’

cost of living house
cost of living house

Homeowners’ monthly payments are soaring by hundreds of pounds when they remortgage, as buyers rush to lock in deals.

Mortgage rates have already more than doubled for many homeowners, but the outlook is even worse for those coming to the end of fixed-rate deals next year, experts warned.

Kester O’Neill, 32, bought his first home near Nottingham in 2019. In September 2021, he remortgaged and took out a new two-year fixed rate deal. This will expire in September 2023 – just after the Bank Rate is expected to peak next year.

Mr O’Neill’s monthly mortgage payments are currently £460. “When the deal ends, I think we will be paying double or more – maybe close to £1,000, if I even can remortgage. It will wipe out all of our spending,” he said.

He is already thinking about cutting back. “We were going to go on holiday next month. Now I’m thinking ‘should I save that money for when we renew next year?’ I will be £600 per month down, and if I miss those payments we risk losing the house,” Mr O’Neill said.

Homeowners are already getting burned by rising rates. Since December, the average rate on a two-year fixed rate has jumped from 2.49pc to 5.97pc, according to Moneyfacts, an analyst. Many forecasters expect average rates will soon exceed 6pc.

Chris Sykes, of mortgage broker Private Finance, noted a client who had fixed at 2pc and has just remortgaged at 5.3pc. “Their payments will go up by hundreds of pounds a month. And some people’s payments are going up by thousands of pounds a month. I have seen a few people on interest-only deals whose mortgage payments have tripled after their fixed rates have ended.”

The remortgage blow will be felt across all property price bands. Mr Sykes noted a homeowner with a £1.125m outstanding mortgage who has just come to the end of a five-year fixed-rate deal. Previously, their mortgage rate was 1.99pc, meaning they paid £4,750 per month. They are now remortgaging with a 4.49pc rate, meaning their monthly bill has jumped by 32pc to £6,250 – an extra £1,500 per month.

But it is the buyers at the lower end of the market, who bought as first-time buyers, who will be hardest hit. This group has had the least time to pay off their loans or benefit from house price growth.

Younger homeowners have the largest monthly mortgage payments, according to research by Uswitch, a comparison website. Homeowners aged 25 to 34 had average monthly mortgage payments of £874, which was 14pc more than the £764 paid by a homeowner aged 55 and above, despite the fact that older homeowners typically have larger and more expensive properties.

Mel Whiting, of Norton Finance mortgage brokers, said: “Customers are worrying about being able to afford their mortgages if they end up on even higher rates if they wait.”

Mr Sykes said: “The phones last week were absolutely crazy. An awful lot of the calls were from people who wanted to bring forward their remortgage deal.”

Normally, homeowners start looking for remortgage deals six months before their existing fixed rate ends. “Now we are getting clients contacting us a year out, or a couple of years out,” Mr Sykes said.

Homeowners who are worried about how much rates will rise when their deal ends should secure a remortgage offer now, Mr Sykes said. These are typically valid for six months.

This is a way to hedge the market, Mr Sykes said. “If you get closer to the end of your existing deal and mortgage rates have gone down, you’re not committed to the remortgage offer. If rates have gone up even more, you can then work out if it is worth paying an early repayment charge to leave your existing deal and take action to remortgage before the offer expires.”