The looming fixed rate mortgage crunch could force over-55s back to work as affordability worries build, new research from Key Later Life Finance has found.
Almost four out of five (79%) over-55s with fixed rate mortgages were concerned about being able to afford repayments once their current deal comes to an end; of these, around 20% were extremely concerned.
For 22%, the crunch will come within a year when their current deals run out.
The Office of National Statistics (ONS) suggested that most fixed rate deals ending in 2023 were set below 2%, so some borrowers are facing a 5.65% (2-year fix) jump with those moving to standard variable rate (SVR) fairing even worse.
The majority (70%) of over-55s were on fixed-rate mortgages with an average two years left to run on the deal, suggesting that unless rates come down drastically by 2024, borrowers may still face hard choices.
Key’s study – conducted before the latest Bank of England rate rise to 5.25% – found 23% of over-55s might have to return to work or work longer hours in order to afford a higher fixed rate deal.
Around 22% did not think they can manage a rate of 6%-plus.
Around one in five (20%) were worried about going into arrears on their mortgage as a result of rate rises, while 21% said they have not dared think about their situation, while 17% might have to downsize or sell their home.
Almost a quarter (23%) were confident they would be accepted for the best possible rate for their situation when their deal ends, while 25% hoped they would be.
Around 15% said they would go onto their lender’s SVR and then look for a better rate when the market environment changes, while 7% said they would be happy to stay on the SVR.
Around 10% would take their lender’s offer and not seek advice.
Will Hale, CEO at Key, said: “Most over-55s with mortgages have been protected from the impact of the Bank of England’s series of rate rises as they have been on fixed rate deals with many paying less than 2%.
“Unfortunately, that era of low mortgage rates is over. Many older homeowners are now heading for steep increases in their monthly repayments and particularly given the continuing increases in other cost-of-living expenses, worries about being unable to afford higher rates are growing.
“Managing an increase of 5.65% when moving from one two-year fix rate mortgage to another or seeing an even larger 6.65% jump when you move to your lenders standard variable rate is understandably frightening.”
He added: “However, there are things that can be done – provided you take the time to consider what you need ahead of time rather than waiting until you are forced to remortgage and pushed into a rushed decision.
“No one option is right for everyone but by speaking to an adviser who specialises in later life lending products, you can gain an understanding of your different choices.
“You may find that a retirement interest only mortgage is right for you or perhaps a modern equity release plan which offers more flexibility around repayments – allowing interest to be served, ad hoc repayments to be made or even no repayments at all if your finances are particularly stretched.
“Taking the time to get specialist advice will pay off in the future and help customers to manage the rate shock.”
