Two years on from the Liz Truss mini-Budget, more than 38,000 homeowners will be an average of £320 a month worse off when they remortgage this month, data from MPowered Mortgages shows.
Borrowers who took out a two-year fixed rate mortgage in August 2022 – the last month before the former Prime Minister’s fiscal statement sent interest rates rocketing – locked into an average interest rate of just 2.59%, the lender’s analysis of Bank of England figures reveals.
The UK’s six biggest lenders issued loan illustrations to 38,641 borrowers applying for two-year fixes in August 2022.
As their fixed rate period ends this month, these homeowners are set to see their interest rate double if they remortgage with a high-street lender.
The average interest rate offered by the same six lenders on loan illustrations produced this week for existing borrowers looking to remortgage onto new two-year fixes was 5.08% — almost twice as high as it was two years ago.
The average size of loan sought by these applicants two years ago was £243,000, meaning that if they secured the average interest rate of 2.59% for the first two years of a 25-year repayment mortgage, their monthly payments over the past two years would have been £1,101.
Assuming they’ve paid off £13,000 of their original loan over the past two years and leave their loan term unchanged at 23 years, the survey says, their monthly repayments will jump to £1,421 when they remortgage — an increase of £320 a month and an extra £7,680 over the next two years.
MPowered Mortgages chief executive Stuart Cheetham says: “Up to 38,000 people face a seemingly unwinnable game of stick or twist in August as their two-year fixed rate mortgages come to an end.
“In many ways, they have been lucky. By locking in a mortgage on the eve of the mini-Budget, they secured a low interest rate and their monthly repayments have stayed the same even as thousands of others saw theirs go up.
“Few will want to revert to their current lender’s standard variable rate, and as of this week, those remortgaging onto a fresh two-year fix with one the high street lenders will see their interest rates increase significantly.
“However, there is some good news. Following the Bank of England cutting the base rate on 1 August, the most agile mortgage lenders are wasting no time in passing on lower interest rates to borrowers.
“Average two-year fixed rates have dropped from 5.17% to 5.08% since the start of August, and we expect further cuts this month as competition among lenders intensifies.”
