According to data from the Bank of England, borrowers who secured a two-year fixed rate mortgage in August 2022 locked in an average interest rate of 2.59%, just before the mini budget triggered a sharp increase in rates
Two years after Liz Truss’s mini budget, new analysis from MPowered Mortgages suggests that more than 38,000 homeowners will face an average increase of £320 in their monthly payments when they remortgage this month.
According to data from the Bank of England, borrowers who secured a two-year fixed rate mortgage in August 2022 locked in an average interest rate of 2.59%, just before the mini budget triggered a sharp increase in rates.
According to MPowered Mortgages, the UK’s six biggest lenders issued loan illustrations to 38,641 borrowers during that period. As these fixed rate periods expire this month, those homeowners are expected to encounter interest rates nearly doubling if they remortgage with a high street lender.
Currently, the average interest rate offered by the same lenders on new two-year fixed rate mortgages is 5.08%, almost twice the rate of two years ago.
For the average loan size of £243,000, those who secured the 2.59% rate two years ago have been paying £1,101 per month on a 25-year repayment mortgage. Assuming they have paid off £13,000 of the principal and maintain the loan term at 23 years, their monthly payments will rise to £1,421 after remortgaging, resulting in an increase of £320 per month.
Up to 38,000 people are in a challenging situation as their two-year fixed rate mortgages come to an end this month, according to Stuart Cheetham, chief executive of MPowered Mortgages. While they benefited from lower rates initially, remortgaging now could lead to significantly higher payments.
Cheetham, nevertheless, noted a silver lining, pointing out that the BoE’s recent base rate cut has prompted some lenders to reduce interest rates.