More than 800,000 homeowners face a double mortgage rate shock as the Bank of England warns interest rates will stay high for years.
City analysts warned that mortgage holders who have taken out more expensive new deals since the Bank of England began increasing borrowing costs in December 2021 could be hit by another jump in housing costs when their current deals expire.
Analysts estimate that at least half of the 1.68 million households who have remortgaged in the last year have taken out two-year fixes.
These homeowners have had to move from rates of 1.5pc or 2pc onto new deals at around 4pc – more than double what they were used to.
However, they are likely to see another jump in payments when their deals expire in 2024 and 2025 as the Bank of England has warned that interest rates could stay above 5pc until 2026.
Andrew Wishart, who runs the housing service at Capital Economics, said: “There will be at least 800,000 households who remortgaged between mid-2022 and mid-2023 who will be refinancing between 2024 and 2025.
“If mortgage rates stay above 5pc, they will see a further increase in their rates.”
Brokers said homeowners coming to the end of fixed-rate deals over the last 18 months have increasingly turned to short-term fixed-rate loans on the expectation that interest rates would soon be falling again.
David Hollingworth, of L&C Mortgages, said the proportion of homeowners locking in rates for only two years has “broadly doubled” as interest rates have climbed.
Mr Hollingworth said: “In the last 12 months there has been quite a stark shift in the number of borrowers opting for two-year fixed rates. Last year, it would have been around 30pc or below. That proportion has risen markedly this year to in excess of 50pc.”
He added: “That will certainly have been predicated on the hope that rates will have fallen back by the time their deals come to an end.”
Expectations for how high interest rates will climb and how long they will stay there have been steadily increasing this year.
City traders expect the Bank Rate will peak at 5.75pc, up from 5.25pc today, and will still be at 5.5pc by August 2024.
370,000 households moved onto new mortgage deals with different lenders in the 12 months to March 2023, while 1.3 million took out new deals with their existing lenders, according to data from UK Finance.
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Source: https://finance.yahoo.com/news/risk-double-mortgage-shock-bank-050000876.html