Almost nine in 10 homeowners (89%) are concerned their mortgage payments increasing will impact their ability to pay everyday household bills, according to new research by Comparethemarket.
In September, the Bank of England raised its base rate by 0.5% to 2.25% – the highest level since 2008.
Because of this alarming increase, coupled with the fact 55% of homeowners are due to come to the end of their fixed term within the next three years, many are set to experience a substantial repayment shock soon.
Alex Hasty, director at Comparethemarket, said: “We understand it is an uncertain and difficult time for many homeowners, as SVR and fixed-term rates rise, the number of mortgage products fluctuates, and the cost-of-living crisis deepens.
“Those soon coming to the end of their fixed rate deal are likely to face a big repayment shock, even if they’re remortgaging.
“For these homeowners, it is best practice to remortgage rather than switch onto your lender’s higher standard variable rate.”
According to Comparethemarket’s research, 71% of homeowners say they will choose to remortgage when they come to the end of their fixed term deal, while those who are planning not to (15%) could face a big repayment shock, as they will likely be moved onto the lender’s higher standard variable rate (SVR).
However, of those surveyed, 25% are not currently on a fixed-rate mortgage deal – of these, 16% are on an SVR, meaning these borrowers are risking paying a higher interest rate.
55% of homeowners cited the certainty of repayments for a fixed amount of time as the main benefit of fixed-rate mortgages, and 48% claimed to feel protected against future rate increases.
Hence the reason why fixed-rate mortgages are traditionally popular amongst homeowners, with three-quarters of those surveyed having chosen a fixed term deal.
However, as fixed-term mortgage rates continue to increase, homeowners are now faced with a difficult choice, as fixed-term deals have recently risen to a higher rate than the average SVR.
Currently, the average SVR rate is 5.44% as of 7th October 2022 for the big five lenders, but the average two-year fixed rate has now reached over 6%.
Hasty added: “It’s important to compare mortgage products online – checking the available deals now and staying aware of what is happening in the market will help you to prepare your budget and save for the future.
“Fee-free mortgage advice can be obtained through Comparethemarket’s partner, L&C mortgages.
“We also suggest comparing policies on existing bills, such as motor and home insurance, which could help mitigate broader financial pressures.”
