Nearly half a million homeowners are facing a sharp rise in monthly mortgage payments next year as their 5-year fixed deals end, research by Compare the Market found.
Around 469,000 people who took out mortgages in 2020 are set to see payments rise by £510 a month if they move onto their lender’s standard variable rate (SVR), based on an average mortgage debt of £178,523.
Monthly payments could jump from £766 to £1,277, with the average SVR now at 7.13%, up from fixed rates of 2.11% in 2020.
Homeowners coming off these deals could end up paying £15,319 a year, compared to £9,195 on their previous rate.
However, switching to a new 5-year fixed deal at an average rate of 4.33% could save up to £3,618 a year.
A 2-year fixed rate at 4.60% could mean annual savings of £3,290 compared to the SVR.
Moving to a new 5-year fix would see monthly costs rise by £209, while a 2-year fix would mean an increase of £236 a month.
Guy Anker, mortgage expert at Compare the Market, said: “Our research shows that around half a million homeowners locked in a five-year fix rate in 2020 when rates were low during the pandemic.
“Securing these deals may have saved households a significant amount of money over the past five years.
“However, as they reach the end of their fixed rate, these households may now face a substantial jump in mortgage costs.”
Anker added: “For any homeowners coming off a fixed rate mortgage this calendar year, it’s worth shopping around online soon and seeing what other deals are available, as this could potentially save thousands in annual repayments compared to going onto an SVR.
“You can sometimes book in a new rate up to six months before it’s due to start, and even if your deal expires towards the end of the year, it’s worth understanding the market now so you’ve all the info to hand when it’s time to act.
“While you can compare online, it’s also a good idea for homeowners to speak to a professional mortgage adviser to be as informed and confident as possible in their financial decisions if they don’t understand what can be a complex market.”
He added: “Even as someone who knows the market, I would use a broker, as they can have access to deals or crucial lending criteria not available to the general public.”
David Hollingworth, associate director at L&C Mortgages, said: “Although many homeowners have had to deal with the payment shock of their ultra-low fixed deal ending, fixed rates have improved recently as the rate outlook has improved.
“While this will ease some of the pain, hundreds of thousands will still be steeling themselves for a steep hike in their rate as their fix ends.
“There could be temptation to wait in the hope of lower rates to come but that carries the risk of falling onto a sky high standard variable rate.”
Hollingworth added: “With uncertainty in the market, rates are constantly moving and some have edged back up, so it can be a confusing time for borrowers.
“Seeking advice in good time, will allow homeowners to secure a deal, protecting against any turnaround in pricing but still having the chance to review before the switch and take advantage of lower rates, if there is further improvement.”
