Homeowners are currently facing a tough decision as mortgage rates have risen to their highest level in over ten years. With the Bank of England’s interest rates reaching 4.25% last month and predictions of a further increase to 4.50% this year, many are carefully considering their options.
According to the Office for National Statistics (ONS), approximately one million people have mortgage deals that will end this year, with 57% of those coming up for renewal in 2023 fixed at interest rates below 2%. However, these property owners are now facing average two-year fixed mortgage rates of 5.32% and five-year fixed rates at 5%, as reported by Moneyfacts. These rates were significantly lower last year, at 2.65% and 2.88%, respectively.
While forecasters predict the rates to settle at 4-5% this year before gradually declining in 2024, the future remains uncertain. Homeowners realistically have three options to consider when deciding what to do next.
Firstly, they could opt for long-term fixed mortgages of five years. This will give the property owner long term security and these deals are currently cheaper as the markets expect interest rates to fall next year. However, fixing for a period of 5 years means homeowners will not see the benefits if rates start to come down sooner. The average five-year fixed rate on offer now is around 4.75%.
Secondly, homeowners could choose shorter fixed-term products, which will cost more now. However, the potential payoff is that cheaper deals are likely to be available when the contract comes to an end. The average two-year fixed rate on offer is around 4.50%.
Finally, property owners may opt to stick with a lender’s Standard Variable Rate. This is a riskier but more flexible approach, particularly if you have a deal with no early repayment charges, allowing borrowers to benefit if interest rates fall, but if rates stay high or rise they are free to switch to a different deal at any time. The average SVR was recorded at 7.15% at the end of March. The last time SVRs were this high was in 2008.
Overall, it is challenging to predict what will happen with interest rates, and getting advice from our expert mortgage advisors is vital. Homeowners need to weigh the pros and cons of each option and decide what is best for their financial situation. With direct access to hundreds of competitive mortgage products, our team can help make this decision less daunting. Get in touch now on 020 3645 4322 or send us a direct message.