Over 1.6 million UK homeowners are staring down the barrel of a mortgage crisis as their fixed-rate deals are set to expire in 2024, exposing them to skyrocketing monthly payments.
Many of these homeowners have been enjoying historically low fixed mortgage rates of around 2% or less in recent years. However, a series of aggressive interest rate hikes by the Bank of England over the past 24 months has pushed the average two-year fixed mortgage rate above 5.5% as of July 2024, with some standard variable rates reaching as high as 9.49%.
This means that when these homeowners’ fixed terms end, they could face hundreds of pounds per month in additional costs to remortgage, putting a severe strain on household budgets.
“For 13 years, the Bank of England kept the base rate locked below 1%, and the thought of it suddenly ramping up to 5.25% was almost unimaginable,” said Alastair Douglas, CEO of credit experts TotallyMoney. “People became used to cheap money — and rock bottom rates helped drive up property prices.”
Data from the Office for National Statistics shows that UK house prices rose by over 20% between 2020 and 2022, as rock-bottom interest rates fuelled a pandemic-driven property boom. However, the rapid reversal of this trend has left many homeowners vulnerable.
According to analysis by the financial research firm Moneyfacts, the average two-year fixed mortgage rate stood at just 1.99% in July 2022, before climbing steadily to reach 5.52% by June 2024 as the Bank of England hiked rates from 0.1% to 5.25% to combat stubbornly high inflation.
With the Bank’s Monetary Policy Committee widely expected to keep rates elevated throughout 2024 to rein in price rises, millions of homeowners are bracing for a painful financial shock when their cheap fixed deals expire.
“Now the average two-year fixed-rate is more than 5.50% and standard variable rates are as high as 9.49%,” Douglas warned. “Anybody now rolling off an old deal is likely to be in for a shock when their mortgage payments suddenly skyrocket.”
Industry experts are urging affected homeowners to start planning now, either by remortgaging early or exploring other options such as extending their current fixed term, to cushion the blow of the coming mortgage rate spike.
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