500,000 homeowners avoid mortgage rate hikes

New data shows that up to 500,000 borrowers will avoid the rise in mortgage rates that has affected millions of other households.

Lucky homeowners won’t have to put up a penny more in monthly payments until 2027, according to the Bank of England.

They have saved thousands of pounds compared with those whose payments have risen with interest rates in recent years and, when their fixed-rate contracts end, they should be able to switch to new, fairly favourable contracts.

A typical increase in 2027 could be £178 a month, half the level a borrower remortgaging in 2023 would face, according to analysis by financial services platform Hargreaves Lansdown.

Such was the effect on households of the rise in mortgage costs following Liz Truss’s mini-budget in September 2022 that Chancellor of the Exchequer Rachel Reeves is planning legislation aimed at preventing a repeat of similar spending and tax announcements. In September 2022, the average two-year fixed rate was 3.66%. By October it had jumped to 5.24% and 5.9% by early November.

Bank of England figures show that while many borrowers have seen their monthly payments rise, there are still three million of them on rates below 3%. Of these, about 2.5 million have contracts that expire at the end of 2026. That leaves half a million people who do not have to pay more until 2027.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said that if average mortgage rates fall in line with the Bank of England’s rate projections, a typical two-year fix would fall to 4.67 per cent.

“This is still well above the levels we were used to before rates began their inexorable rise, but well below their peak, so half a million people who remortgage their mortgages will escape the worst of the rises,” Coles said.

According to their calculations, a borrower who locked in a five-year fixed rate at 2.66% in January 2022 on a 25-year £200,000 mortgage would pay £54,780 over the five years. If someone paid the same rate in 2022 but the deal expired in early 2023 (leaving them with a new deal at 5.79%), they would pay £70,908 over the five years as their monthly payments would have risen by £336.

Coles said the average household typically has £296 left at the end of each month, adding: “Finding £178 more towards the mortgage is clearly more manageable than £336.”

And those with 10-year contracts that were available at less than 2 percent at the end of 2021 should “give themselves a pat on the back,” said David Hollingworth of L&C Mortgages.