55% of homeowners are coming to the end of their fixed term deal within three years, according to new research by Comparethemarket.
In September, the Bank of England raised its base rate by 0.5% to 2.25% – the highest level since 2008. 89% of homeowners soon coming to the end of their fixed rate deal are worried about rising interest rates and their mortgage payments increasing, and 89% of these are concerned this will impact their ability to pay everyday household bills.
While 71% say they will choose to remortgage when they come to the end of their fixed term deal, those who are planning not to (15%) could face a big repayment shock, as they will likely be moved onto the lender’s higher standard variable rate (SVR). However, of those surveyed, 25% are not on a fixed-rate mortgage deal. Of these, 16% are on an SVR.
The main benefits of fixed-rate mortgages cited by homeowners are that this type of product provides certainty of repayments for a fixed amount of time (55%) and by locking into a rate, you are protected against future interest rate rises (48%). Hence fixed-rate mortgages are traditionally popular amongst homeowners, with three-quarters (75%) of those surveyed having chosen a fixed term deal.
However, as fixed-term mortgage rates continue to increase, fixed-term deals have recently risen to a higher rate than the average SVR. Currently, the average SVR rate is 5.44% as of 7th October 2022 for the big five lenders, but the average two-year fixed rate has now reached over 6%.
Alex Hasty, director at Comparethemarket, said: “We understand it is an uncertain and difficult time for many homeowners, as SVR and fixed-term rates rise, the number of mortgage products fluctuates, and the cost-of-living crisis deepens. Those soon coming to the end of their fixed rate deal are likely to face a big repayment shock, even if they’re remortgaging. For these homeowners, it is best practice to remortgage rather than switch onto your lender’s higher standard variable rate.
“It’s important to compare mortgage products online – checking the available deals now and staying aware of what is happening in the market will help you to prepare your budget and save for the future. Fee-free mortgage advice can be obtained through Comparethemarket’s partner, L&C mortgages. We also suggest comparing policies on existing bills, such as motor and home insurance, which could help mitigate broader financial pressures.”
