The most sensitive topic on the lips of current and potential mortgage borrowers in the UK at the moment is mortgage rate hikes. The news is full of horror stories of how rates have shot up over the last few months, leaving thousands of borrowers worse off on their monthly mortgage payments. Thankfully many UK economists are in agreement that this latest base rate increase from the Bank of England will most likely be the final one and inflation should start coming down quickly. However, despite this positive news, interesting data suggests that the real impact of mortgage rate hikes is still yet to be felt by borrowers.
Mortgage Rate Hikes Still To Be Felt By Borrowers
There is a lot of talk about people looking to get their first mortgages and being deterred by higher than normal mortgage interest rates, but experts suggest that the real victim of these recent hikes will be current borrower’s whose fixed rate products will come to an end soon. When getting a mortgage, people generally tend to opt to fix their product for several years (normally 2 to 5 years). Fixing your mortgage allows you to keep a mortgage product at the same rate for a number of years, without the risk of the rate going up at all. According to the Bank of England, 90% of UK mortgage owners have a fixed rate product of some sort. When this product comes to the end of it’s fixed period, a mortgage advisor will help you to change on to another fixed competitive rate.
For thousands of borrowers who secured and fixed their mortgage 5 or even 2 years ago at a very low rate, coming off this fixed period will be a huge shock to the system. Especially if they don’t get the right help and guidance from a qualified advisor. Back before the pandemic, the average UK mortgage rate was 2.44%. That means that someone borrowing £300,000 over 30 years could enjoy a fixed monthly payment of £1,176 for the next 5-years. But, the average UK mortgage rate at the time of writing this blog is now 4.78%. That gives a new mortgage payment of £1,570 a month. An extra £394 a month or £4,728 a year. And that is just based on an average figure. Some lenders charge interest rates in excess of 5% and lenders standard variable rates can get as high as 8% in some cases.
Avoid the Standard Variable Rate and Secure a New Product
In an article reported by This Is Money, it is estimated that only one third of the £12 billion inflation linked mortgage rate hikes have actually been passed on to borrowers so far, meaning that £8 billion is still yet to hit those borrowers who haven’t came off of their fixed rate products yet. What is the worst case scenario? Is this avoidable? And what can you do to avoid paying above average mortgage rates.
The worst case scenario for borrowers coming off of fixed rate products in our opinion is not getting in touch with an advisor nice and early and falling onto the lender’s standard variable rate (SVR). At Oportfolio, we can start looking at remortgage options for you 6 months before your fixed period comes to an end. That means we can have 6 months to work with you and make sure that you get the best mortgage deal possible for your circumstances. Without the help of a mortgage advisor, you could risk going direct to a bank and securing a product that is not the most competitive on the market.
How Much Could Being On An SVR Cost You?
If you don’t secure a new product, you will automatically fall onto the lender’s SVR and will definitely pay much more than the average rate. For example, Santander’s SVR rate is currently at 7.50%. Using the same borrowing figures above, this would push mortgage payments up to £2,098 a month. An extra £922 a month or a massive £11,064 a year.
Unfortunately we can’t force the lenders to reduce their rates, but rates are coming down and will drop further over the coming months. As part of the PRIMIS mortgage network, Oportfolio have access to over 90 different mortgage lenders and thousands of mortgage products, so our job is to help you get the best deal available to you which will save you time and money.
Speak To a Mortgage Advisor Today
If you are coming to the end of your fixed rate mortgage and have 6 months or less remaining, now is the perfect time to speak with a mortgage professional about remortgaging. Remortgaging with an expert advisor can help you to avoid paying too much for your new loan in a difficult mortgage market. Call our team today to speak with one of our brokers for a free initial remortgage consultation. We are here to help.