Hundreds of thousands of homeowners’ mortgage bills could nearly double as soaring interest rates push up the cost of borrowing.
Customers coming to the end of fixed-rate deals face enormous jumps in their monthly bills when they remortgage – sparking fears of an affordability crisis.
Maurice Latimer, 78, is a pensioner whose mortgage bill is about to jump by 76pc when he refinances at the end of this year.
He is currently on a two-year fixed rate deal at 1.84pc, meaning he pays £401 per month. When his fixed term expires in December, his lender has offered him a new fixed rate at 3.24pc. This means his monthly bill will surge by more than £300 to hit £707.
“We have got to cut back on everything. It is coming just as everything else is going up,” said Mr Latimer.
His wife has multiple sclerosis, which means that it is difficult for them to reduce their energy use. “She needs to keep warm,” he added.
Their combined monthly income from state pension and disability payments is around £1,900. The increase in their mortgage payments alone will take up 16pc of their monthly income.
Mrs Latimer’s condition means that they cannot sell up and move because they have equipped the house to accommodate her wheelchair and lifting aids.
An estimated 1.3 million homeowners will come to the end of fixed-rate deals in 2022, with a further 1.8 million remortgaging in 2023, according to UK Finance, a lender body.
Of these, across this year and next, nearly a million homeowners will come to the end of two-year fixed-rate deals. It is this group of borrowers who will get hit by the worst “rate shock”. These homeowners took out mortgages when the Bank Rate was at a record low of 0.1pc and buyers could find sub 1pc mortgages.
They will have to remortgage at rates that are three or four times higher than what they are used to – just as they are having to shoulder the hit of inflation and soaring energy bills, which are now forecast to hit £4,266 per household in January.
The cost of remortgaging after a two-year fixed-rate deal expires this year, plus inflation, means that households will see their real disposable income fall by around a quarter, according to UK Finance. Next year, when interest rates have climbed further, the hit will be even bigger.
But Mr Latimer knows that the rate will only get higher. “We will lock in 3.24pc now for three years, because it will be 4pc in a few weeks.”
He is still paying off his mortgage because, until two years ago, he was a mortgage prisoner – one of 250,000 homeowners who became trapped in mortgage deals that they couldn't leave, despite being up to date with payments, because of the fallout from the financial crisis.
He bought his home in 2001 with a mortgage from Northern Rock. When the bank went bust during the global financial crisis, the Treasury sold his mortgage on to a money lender, which meant he had no option but to pay extremely high rates.
“At one point I was paying £1,200 per month on an interest-only deal when market rates for repayment mortgages were £600. Overall, I have paid more than £100,000 in interest because I was a mortgage prisoner. After I calculated I had got to £100,000, I stopped counting,” said Mr Latimer.