Homeowners warned of more remortgaging pain despite rate cuts

Borrowing costs remain higher than five years ago, boosting monthly payments

Homeowners will pay higher monthly mortgage payments until 2027, despite falling interest rates, analysis shows.
The Bank of England voted to reduce its Bank Rate to 5pc last month from a 16-year high of 5.25pc. But homeowners who took out a five-year fixed rate mortgage before September 2022 will see their monthly payments increase when they come to remortgage, according to analysis by estate agent Hamptons.
While mortgage rates are falling, they are set to remain high relative to rates people locked in five years previously. This means that someone who took out a £200,000 75pc loan-to-value mortgage on a five-year fixed rate deal in September 2019 would see their payments increase from £827 to £1,016 if they remortgaged today – a £189 rise.
Homeowners who locked in their five-year deal in September 2022 or later will see their mortgage repayments fall when they remortgage from September 2027. Those who remortgage between September 2027 and September 2028 will see their repayments fall by an average of £95.
David Fell, of Hamptons, said: “The rise of the fixed rate mortgage means there’s a big lag between interest rates going up and borrowers feeling the pain in their pocket. And the same is true on the way down when rates are falling.
“Households who locked in during the last two years will probably be paying higher rates than new borrowers today.
“While historically, older generations generally saw the cost of their mortgage fall over time, anyone who bought for the first time in the last decade is likely to face higher housing costs for longer.”
The Hamptons analysis used forecasts of future mortgage rates based on Bank of England data. The Bank’s decision to reduce rates in August raised hopes that the move will kick off a downward cycle.
Mortgage holders and first-time buyers have long held out for a reprieve as the current interest rate cycle has caused mayhem in the property market over the past two years.
Economists are betting on the Bank Rate falling to 4.75pc before the year is out. However, mortgage rates are still much higher than five years ago, putting pressure on those who need to remortgage.
In September 2022, the average two-year fixed rate mortgage was 4.24pc and the average five-year was 4.33pc. At the start of this month, the average two-year rate was 5.56pc and the five-year average was 5.20pc.
Rachel Springall, of Moneyfacts, said: “Affordability is a pressing point for both homeowners looking to refinance and new buyers, so those struggling to see how they can afford mortgage repayments will no doubt be desperate for interest rates to come down further.
“Those coming off a five-year fixed mortgage will find rates are much higher now, as back in 2019 some borrowers could get a rate of less than 2pc on a five-year fixed mortgage, but the lowest rates have only pushed below 4pc in recent months.
“Homeowners unsure on whether to lock into a new fixed rate mortgage now must keep in mind that falling on to a standard variable rate (SVR) can be much more expensive, as the rates charged are around 8pc on average.”
David Hollingworth, of brokerage London and Country Mortgages, said: “If you’re coming to an end now or within six months, you can start the process of hunting around for a deal now. This will help having a smooth transition instead of slipping on to SVR which is still way higher than fixed or tracker rate.
“Lots of people are going for fixed rates because they prefer security. But we’ve seen an uptick in two-year products, as people hope rates will improve.
“The margin between trackers and fixed rate deals will narrow as interest rates fall, and we will see more people considering a tracker rate.”