Are we in a mortgage crisis? Here’s how much payments have really risen

  • Every month 150,000 mortgage holders reach the end of cheap fixed deals
  • Many find they’re moving to rates that are two, three or even four times higher
  • In this six-part series we reveal how British homeowners are managing 

Homeowners with a mortgage may well have felt an impending sense of dread over the past two years.

Since rates began rising, many of the nine million mortgaged households in the UK and close to two million buy-to-let landlords have been faced with the prospect of much higher payments.

Before that, many had become accustomed to ultra-low interest rates for more than a decade.

With every passing month, another 150,000 borrowers reach the end of their low fixed rate deals – and many find themselves moving to mortgage rates that are two, three or even four times higher.

Locked in: Homeowners typically spend the biggest chunk of their income on their mortgage

For households, this will typically be by the largest part of their overall monthly spending.

But while those with a mortgage have the right to feel aggrieved, how many of them are on the cusp of financial ruin, or heading in that direction? It has been described by some as a ‘mortgage crisis’, but is that really the case?

In this six-part series, we look at how much more people are really paying when they take out a new mortgage, how households are coping and if a mortgage crisis is afoot.

First up, we look at how much more people are paying for new mortgages compared to the cheaper deal that many are rolling off. 

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How much more are we paying for mortgages?

Last week the Office for Budget Responsibility (OBR) forecast that the average mortgage rate across all households will hit a peak of 4.2 per cent in 2027.

This is up from a low of 2 per cent at the end of 2021 and above the average mortgage interest rate in the 2010s of around 3 per cent.

The OBR average rate includes all fixed and variable mortgage rates that households are currently paying.

This includes those who remain on very low fixed rate deals. This is why the OBR rates tend to be lower than the market average rate for new home loans.

The market average rate, as reported by Moneyfacts, takes into account every fixed rate deal currently available to those either buying or remortgaging.

The average two-year fixed rate mortgage deal, according to Moneyfacts, is currently 5.78 per cent, while the average five-year fix is 5.35 per cent.

That’s significantly up from the average two-year fix and five-year fixed rate mortgage deals paid prior to rates going up in 2022.

For example, someone who took out a mortgage in March 2022 will now be coming off an average rate of 2.64 per cent, according to Moneyfacts.

On a £200,000 mortgage being repaid over 25 years, that’s the difference between paying £911 a month and £1,262 a month when fixing for two years.

Meanwhile, a five-year fix that was taken out in March 2019 would have an average rate of 2.89 per cent.

For someone with a £200,000 mortgage being repaid over 25 years, that’s the difference between paying £937 a month and £1,210 a month.

Many people will get a cheaper rate than the average, especially if they have more equity in their home and a good credit profile. 

However, even those with the biggest deposits or largest amount of equity will see their costs rise. Exactly five years ago, the cheapest five-year fix was 1.79 per cent. Now, it’s 4.09 per cent.

How much can you afford?

Find out how much you can afford to borrow for a monthly payment amount with This is Money’s mortgage affordability calculator.

For someone with a £200,000 mortgage being repaid over 25 years, that’s the difference between paying £827 and £1,066 a month.

As for someone moving from the cheapest two year fix in March 2022, which was 1.64 per cent, and moving to the cheapest 4.6 per cent two year fix now, the jump will be even bigger.

On a £200,000 mortgage being repaid over 25 years that’s the difference between paying £813 a month and £1,123 a month.

Arjan Verbeek, chief executive of mortgage lender Perenna says: ‘For those remortgaging, they will experience a significant increase in their monthly repayment, which is typically the biggest fixed cost most people make. 

‘Some might be able to withstand this steep increase, but at what cost? 

‘The cost of reducing consumption elsewhere and being forced into trade-offs – whether that’s putting off major life events such as getting married or starting a family, to not being able to go on a well-deserved holiday, or instead being forced to go into their retirement savings.’

However, for now, many mortgage holders remain protected from higher interest rates by their fixed term deals.

David Hollingworth, associate director at L&C Mortgages, says: ‘There is an element of timing which means the crisis level will depend very much on when the last deal was taken and for how long.

‘Many are far from crisis having been able to watch the worst of the spike in mortgage rates from the comfort of an ongoing low fixed rate.

‘For those homeowners that have moved to higher rates, they will cut their cloth accordingly and will rein back spending to prioritise their mortgage payments.

‘No one will find an additional few hundred pounds per month easy to find so this is certainly challenging for borrowers.’

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