Homeowners who secured two-year fixed mortgages just before the infamous mini-Budget of September 2022 are due to face a significant financial hit, with repayments set to rise by over £3,800 annually.
New analysis shows that around 38,000 households who locked in low interest rates in August 2022—just before Liz Truss’s chancellor, Kwasi Kwarteng, announced unfunded tax cuts—are now facing a steep increase in their mortgage payments.
At the time, these borrowers managed to secure an average interest rate of 2.59 percent, keeping their monthly payments low, even as others saw theirs rise amid market turmoil.
However, with those two-year deals expiring, the same borrowers are now looking at new rates averaging 5.08 percent from the same lenders. This shift means a typical monthly payment will jump from £1,101 to £1,421, adding £320 to household expenses each month, the i reports.
Stuart Cheetham, CEO of MPowered Mortgages, described this situation as a “seemingly unwinnable game of stick or twist,” noting that few will want to revert to their lender’s standard variable rate.
The positive news is that mortgage rates are starting to decline. Although the average rate is currently 5.08 percent, better rates are available, with some dropping below four percent for buyers and nearing four percent for those remortgaging.
Experts suggest that rates could fall to around 3.5 percent by the end of the year for those with larger deposits.
MPowered said it has already cut rates twice in a week, and economists are predicting that interest rate cuts could entice lenders to reduce mortgage rates further.
This potential decline in rates offers some relief to homeowners and prospective buyers, indicating a better borrowing environment ahead.
TSB Bank announced mortgage rate cuts of up to 0.25 percent to a range of two-, three- and five-year fixed rate deals for Homeowners and First Time Buyers, that have come into effect on Wednesday, August 21.
HSBC and Barclays have also announced further reductions across a range of deals, which also come into effect today.
Ranald Mitchell, Director at Charwin Mortgages said: “More rate cuts from TSB are yet another development in what has been an intensely competitive summer for lenders. With lenders fiercely vying for attention, the stage is set for a dynamic final quarter of the year.
“The momentum shows no signs of slowing, promising a fast-paced and dynamic end to the year. This is great news for borrowers and the property market.”
Ben Perks, Managing Director at Orchard Financial Advisers, said: “Swap rates continue to trickle downward so hopefully more cuts are on the way as we head into the Bank Holiday weekend.”
