With interest rates hitting a 15-year peak, homeowners who are remortgaging could be due to face a monthly payment rise of £288 on average, new data shows.
This results in an average increase in mortgage payments of £3,456 per year, equating to a 38.6 percent rise. The average mortgage rate, according to Dashly, will jump from 2.29 percent to 5.23 percent.
Dashly, the mortgage insight experts that monitor over £100billion in mortgages, extracted this data from a sample of 75,000 owner-occupied and buy-to-let mortgages with initial rates expiring between August 2023 and July 2024 and found average monthly mortgage payments could rise from £747 to £1,035.
This figure assumes borrowers switch to the best available rate instead of lapsing onto their Standard Variable Rate (SVR).
Brokers shared their views on newspage.media on the findings, with one, Lewis Shaw, founder of Mansfield-based Shaw Financial Services, saying: “2024 will be the year of the remortgage, and given current market predictions, it will be absolutely brutal.”
Elliott Culley, director at Hayling Island-based Switch Mortgage Finance, weighed in: “This data reinforces what we are already seeing on the front line. Borrowers are looking into how they can mitigate the rise in mortgage costs.
“It’s a tough market right now and tough decisions are being made as people change their short-term plans to stay on top of rising mortgage costs. Some will have to take the decision to downsize and some are trying to prepare for the inevitable increase in costs by reducing their overall mortgage balance before their rate rises.”
Meanwhile, Darryl Dhoffer, founder of Bedford-based The Mortgage Expert, pointed out that some borrowers will be affected more than others. He said: “For many, a sharp increase in their mortgage payments is inevitable.
“Let’s not forget these are average figures, so borrowers with lower average mortgage balances will be less impacted than those with much higher above-average mortgage balances.”
While remortgaging may naturally feel daunting in the current climate, experts at Arbuthnot Latham have shared some practical approaches to managing and reducing payments and generally, it requires homeowners to be proactive.
They said: “Regularly reviewing what types of mortgages are available and the interest rates they can offer can be a great way to reduce your mortgage costs.
“Something that often gets overlooked is the value of maintaining a healthy credit score and avoiding excessive borrowing. These can both contribute to you securing a better mortgage deal when yours expire.”
In addition, they said: “Consider a property revaluation, especially if your property’s value has appreciated since obtaining your mortgage. A lower loan-to-value may lead to reduced interest rates and better terms, which could help you to save significantly over the mortgage’s duration.”
They also noted the benefits of making lump sum payments – for instance from bonuses, inheritance or realising investments – which could significantly decrease the outstanding mortgage balance and lead to “substantial” long-term savings.
However, they said: “Before taking this step, review your mortgage terms and check you will not be liable for any early repayment charges.”
Arbuthnot Latham experts also highlighted the risks to be aware of when considering interest-only mortgages, or extending the mortgage term. They said: “Interest-only mortgages may offer lower initial monthly payments and therefore look very attractive if your objective is to reduce your mortgage payments – but you will not be repaying the capital borrowed.”
Meanwhile, they noted that extending a term “can be helpful” during financially challenging times, but stressed that longer mortgage terms also mean paying more interest over time.
The experts added: “Find the right balance between affordability and long-term financial goals by consulting a financial adviser.”