With Christmas approaching, many UK homeowners are expecting to unwrap presents, but some may also unwrap an unexpected mortgage payment increase. Here’s why.
Half a Million Mortgages to Conclude Soon
As we edge closer to the festive period, roughly 500,000 fixed mortgage deals are due to finish. This comes at possibly the priciest time of the year. A heads up from consumer watchdog ‘Which?’ highlights that these homeowners may be in for a bit of a jolt when it comes to their monthly payments.
Financial Conduct Authority (FCA) data shows that more than 500,000 fixed-rate mortgages are poised to conclude in November, December, or January.
The Mortgage Math: Then and Now
Let’s break down the numbers to understand what this really means for the average homeowner:
The FCA reveals that an average mortgage holder has an outstanding balance of £147,000. Rewinding the clock to September 2021, a homeowner with a 20-year term who secured a two-year fixed deal would have been shelling out about £770 each month. Fast-forward to today, and that same homeowner would be facing a monthly bill of £1,106. That’s a jump of £336 every month or an eye-watering £4,032 annually.
What’s the reason behind this spike? Well, current average two-year fixed-rate mortgages hover above 6%. However, those lucky enough to lock in their rates in December 2021 might have secured rates below 2%. That’s a massive difference in just a short span!
Looking Ahead: Brace for Another Surge in Spring
And if you thought this was a one-off, think again. The FCA anticipates another surge in mortgage deal conclusions next spring. Over 180,000 homeowners are expected to transition from their current fixed-term rates in April.
In light of the rising Bank of England base rate, the upcoming months might not offer homeowners rates anywhere close to their existing ones. Hence, if your mortgage deal is set to conclude by year-end, it’s high time to explore new deals and understand the implications on your wallet.
What Can Mortgage Holders Do?
If you’re a homeowner, don’t fret! You have options:
- Preemptive Rate Lock-In: You can usually lock in a new rate up to six months before your existing deal wraps up. Find a better deal later? You can opt-out.
- Speak to Your Bank: ‘Which?’ recommends that banks be primed to offer necessary support, especially during the busy Christmas season. Whether it’s over the phone, email, or chat – it’s crucial that customer service is available and responsive.
- Contact Your Lender: Concerned about the upcoming repayments? Start with your lender. Remember, discussing your situation won’t harm your credit score. You might get options like a temporary payment break, paying just the interest for a time, or extending your mortgage term. Though, bear in mind that some choices might mean you’ll pay more in the long run.
Consumer Duty and Support
The FCA has introduced a new consumer duty, ensuring that financial firms maintain elevated customer service standards. Ele Clark, senior money editor at ‘Which?’, stresses that the ultra-low interest rates homeowners enjoyed for over a decade are a thing of the past. Lenders need to provide robust customer support to guide borrowers through their choices.
Furthermore, Eric Leenders from UK Finance chimes in, noting that Christmas can be taxing on household budgets. However, lenders are on standby to support those fretting about their mortgages. If the going gets tough, he encourages homeowners to get in touch with their lenders to understand the available assistance tailored for individual circumstances.
In addition, a whopping 47 lenders, covering over 90% of the market, have endorsed the Government’s new mortgage charter, ensuring even more assistance for borrowers.
Conclusion
Christmas is meant to be the season of joy, but for many homeowners, it could come with financial challenges this year. Being informed and prepared can make all the difference. If you’re among those with a mortgage nearing its conclusion, remember, help is at hand. Seek advice, explore your options, and ensure you enjoy the festive period without any undue financial stress.