New mortgage borrowers are set to pay thousands more for a home equity loan

Large numbers of homeowners are set to refinance their mortgages in the coming year.

But some may find themselves paying tens of thousands of pounds more over the life of their new home loan than they would have if they had struck a deal just a year earlier.

A series of increases in the Bank of England’s base rate over the past 12 months has pushed up borrowing costs – and mortgage rates have jumped in the wake of the mini budget, with many deals also being pulled.

While borrowers on variable rate mortgages felt the immediate effects of the prime rate hike, those on fixed-rate mortgages were shielded from it—until they needed to strike a new deal.

About four-fifths (78%) of outstanding mortgages are fixed rates.

The average breach for two- and five-year fixed-rate mortgages increased by 6% in the fall of 2022, but lenders have been slowly making reductions in mortgage rates since then.



Those with limited deposits may sit on the fence a little longer buying their first home because the cost of living takes its toll

Rachel Springol, Moneyfacts.co.uk

Increasing prime interest rates has immediately raised borrowing costs for some borrowers based on variable mortgage rates.

Many borrowers rely on fixed rates, which protects them from the immediate effects of a high interest rate environment. But they may be shocked when they come to make a new deal.

Britain’s Financial Trade Association said around 1.8 million fixed-rate mortgage deals are due to close in 2023.

Someone taking out a £200,000 mortgage in December 2022 could face paying around £1,269 a month on a two-year fixed-term mortgage, compared to around £881 a month if they took out a deal in December 2021, according to calculations by Moneyfacts. .co.uk for the Palestinian Authority News Agency.

Over the course of the two-year deal this will result in an additional payment of around £9,310.

And someone with a £200,000, fixed-rate, five-year mortgage could face paying around £1,249 a month, based on calculations done in December 2022. A year ago, they would normally have paid around £911 a month, based on On deals available in December 2021.

Over the course of a five year mortgage this can add up to a cost difference of around £20,000.

The calculations were based on a 25-year mortgage period and compared average mortgage rates on December 9, 2022, to those on December 1, 2021.

The average fixed interest rate for two years on December 1 of last year was 2.34%, but by December 9 of this year it was 5.84%.

The market average five-year fixed interest rate on December 1, 2021 was 2.64%. On December 9, 2022 it was 5.67%.

The rates that lenders offer depend on individual circumstances, including how much equity they own in their home.

Mortgage rates also vary day by day and are affected by many factors.

Money Facts figures show that in the days following the Bank of England’s most recent base rate increase, on December 15th, the average two-year fixed-rate mortgage fell slightly, from 5.83% to 5.82%.

The average five-year fixed-rate mortgage was unchanged at 5.63% between December 15th and December 19th.



With the mortgage market still volatile, primary borrowers are seeking independent advice to consider what deals are being offered to them, or whether they need to be a little patient in the hope that rates will drop further.

Rachel Springol, Moneyfacts.co.uk

Rachel Springol, finance expert at Moneyfacts.co.uk, said lenders are slowly making cuts to their fixed rates.

“However, those with limited deposits may sit on the fence a little longer to buy their first home because the cost of living takes its toll,” she said.

“Borrowers may prefer to hold a long-term fixed-rate mortgage through 2023 due to the uncertainty in interest rates over recent months, but this will depend on their circumstances.

“With the mortgage market still volatile, primary borrowers are seeking independent advice to consider what deals are being offered to them, or whether they need to be patient a bit in the hope that rates will drop further.”

Mortgage borrowers also have fewer options for deals in general than they did about a year ago.

On December 1, 2021, there were 5,315 mortgage transactions in the market, according to Moneyfacts.

But by mid-December 2022, there were just under 3,800 deals.

However, the selection of mortgage deals has improved, compared to 2,258 products counted by Moneyfacts on October 2, 2022.

Some borrowers may want to consider using a mortgage broker to help them find a suitable deal.

Counselor Jeremy Hunt recently met with the heads of the banks, along with consumer champion Martin Lewis and the Financial Conduct Authority (FCA).

The bank’s CEOs, who cover more than 70% of the market, have recommitted themselves to protecting mortgage holders by enabling them to switch to a new fixed-rate mortgage, without a new test of affordability, when their existing deals expire if consumers are up to date. with their payments.

Mortgage lenders must also provide customers with timely information before rates change.

The FCA also said that it expects lenders to support distressed customers in a range of ways that suit their needs.



The high level of activity during the 2021 stamp duty holiday means that a large number of borrowers are due to refinance next year.

UK financing

UK Finance has forecast mortgage arrears to rise from early 2023, increasing through the year and into 2024.

It expects the number of households in arrears to reach 98,500 next year, which is about 1% of outstanding mortgages.

Home repossessions increased modestly in 2022 as lenders and courts worked through cases that had piled up during the coronavirus pandemic.

UK Finance expects this to continue slowly over the next two years, as the backlog clears up, although it added that arrears and repossessions remain low compared to long-term figures.

It encourages borrowers to contact the lender ahead of time to discuss options for their circumstances.

A UK Finance spokesperson said: “The high level of activity during the 2021 stamp duty holiday means that a large number of borrowers are due to refinance next year.

However, there is a wide availability of product transfers and we encourage clients to speak to a full market mortgage advisor to discuss which options are most appropriate to their circumstances.

“As always, any customers who find themselves in difficulty should speak to the lender at an early stage, as the industry is willing to assist with a range of options that can be customized to better suit individual customers’ circumstances.”

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