Some 38,641 mortgage customers who took out a loan before Liz Truss’ mini Budget could face a £320 repayment increase when they remortgage in August.
According to analysis from MPowered Mortgages, which collated Bank of England and top six lender data, the average two-year fixed rate in August 2022 – a month before the mini Budget – stood at 2.59%.
The report noted that the UK’s six biggest lenders issued loan illustrations to 38,641 borrowers for a two-year fixed rate.
As those deals come up for remortgage, their interest rate could double if the remortgage is with a high street lender, MPowered warned.
The average two-year fixed rate offered by the same six lenders currently is around 5.08%, almost twice the figure two years ago.
MPowered Mortgages said that the average loan size in August 2022 for the 38,641 applications was £243,000, so combined with the average rate of 2.59% and assuming a 25-year repayment mortgage, the monthly payments would have been around £1,101.
Assuming that around £13,000 of the original loan has been paid off and the loan term is 23 years, monthly repayments could jump to £1,421 when the people remortgage, an extra £320 per month and an additional £7,680 in the next two years.
‘Unwinnable game of stick or twist’
Stuart Cheetham, CEO of MPowered Mortgages, said that borrowers face a “seemingly unwinnable game of stick or twist in August as their two-year fixed rate mortgages come to an end”.
He continued: “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 [SVR], and as of this week, those remortgaging onto a fresh two-year fix with one [of] the high street lenders will see their interest rates increase significantly.”
Cheetham said that there was “good news” as the base rate had been lowered for the first time since 2020 earlier this month, adding that “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 amongst lenders intensifies.
“At MPowered, we have already reduced the cost of our mortgages twice in the space of a week, and the fall in swap rates ushered in by the combination of the Bank of England’s decision and events in the US means the general trend for interest rates could be downwards over coming weeks and months,” he said.
Anna is currently the deputy editor for Mortgage Solutions and editor for Specialist Lending Solutions. She has worked as a journalist since 2019, having secured her Gold Standard NCTJ diploma from News Associates in a fast-track six-month course.
She started her career as a report at specialist publication The Insurance Insider covering a wide range of areas before joining Mortgage Solutions and Specialist Lending Solutions in 2021.
In her role, she helps put together and structure the news agenda for the day and writes up press releases, reports, interviews, analyses and exclusives across both titles. She also commissions blogs for Specialist Lending Solutions and hosts online masterclasses and in-person events across the business.
She has been shortlisted for three journalism awards, which include BIBA Journalist and Media Awards Scoop of Year Award in 2020, Headline Money Mortgage Journalist of the Year Award (B2B) in 2022 and 2023.
Prior to being a journalist, Anna worked in ecommerce across Snow + Rock, Cycle Surgery and Runners Need websites, and before that worked at specialist financial PR firm Rostrum.
In her spare time, Anna enjoys reading, seeing live music, and cooking for friends and family. When she gets a chance, she also enjoys hiking, skiing and indoor rock climbing.
