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Higher fixed mortgage rates

Journalist: Jonathan Prynn, Evening Standard

ended 21. April 2023

Hello I am writing a piece for the Standard about the huge numbers of fixed mortgage rates that are due to expire this year. As they will have to be refinanced at 4-5% compared to c2% what impact will that have on borrowers and the market? Particularly interested in thoughts about the London market but more general comments welcome. Many thanks Jonathan

17 responses from the Newspage community

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Craig Fish
Director at Lodestone Mortgages
Having many London and South East-based clients, over the past few years of cheap money we have seen people purchasing properties that are now beyond their means. When we have conversations with them, there is a real shock and panic about the significant increase in their monthly payments. To many, it is simply unaffordable, and I have lots of clients who are deciding to sell as they simply can't afford the payments. Other clients who still find the increase a shock,have considered alternative options like extending the mortgage term, but this is only a short-term measure. Worse still is that many clients now fail the affordability calculations of new lenders, which means they are limited to only choosing products from their current lender, and in many cases, these are not the cheapest on the market. This is happening even though rates are still falling. Rates are never going to return to the lows we have seen, so there appears to only be one solution for many, and that is to sell up.
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Aaron Strutt
Product and Communications Director at Trinity Financial
Fixed rates have been getting cheaper and more lenders are offering sub-4% mortgages but there is still a huge payment shock. This is especially the case for borrowers in London with big mortgages and expensive houses. Most homeowners will be able to cope with the extra repayments but it may well mean they have cut down on spending in other areas. There has been a real shift in the number of borrowers taking two-year fixes rather than five-year deals. They are taking a punt that rates will come down and they will be able to lock into a cheaper mortgage in a few years. Incredibly, many lenders are offering two, three, five and ten-year fixes rates that undercut the Bank of England base rate. Surreal times.
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Lea Karasavvas
Managing Director at Prolific Mortgage Finance
A combination of the raising base rate and increased cost of living crisis started to form a ticking time bomb for many borrowers who were seeing fixed borrowing secured at 1.29% followed by rates that were starting in the 5s. However, in recent months we have seen swap rates reduce to sub-4% and the cost of borrowing for lenders has reduced because of this. Whilst some London-based clients may have overstretched themselves originally, rates starting at 3.79% have softened this blow. With some lenders taking mortgage terms to 40 years, and other lenders taking max ages to 80, we have seen many clients consolidate this payment shock by either increasing the term of their mortgage for the interim or opting to consider an element of interest only. The payment shock is a very real concern but we have found most clients have found a way to navigate through on the residential side. It is actually the payment shock being experienced by landlords that is creating greater concern.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
We're seeing lots of clients opting to extend the term of their residential mortgage when their fixed rate ends as this helps soften the blow, and reduces the monthly payments on the new, higher rates they are fixing at. For landlords, particularly those in London, as their fixed rate deals end many are having to take a new product with their existing lender rather than remortgage elsewhere onto a potentially better rate. One of the key reasons for this is the higher stress-test rates being used, which can mean no other lender would be prepared to lend the amount needed. Maximum buy-to-let mortgage borrowing is closely linked to the rental income a property can generate. Rental yields tend to be lower in London and the South East, so many borrowers were already close to the maximum available mortgage borrowing under the previous, lower stress-test rates.
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Nicola Schutrups
Managing Director at The Mortgage Hut / William James Wealth Management
We're finding that consumers are resilient when it comes to an increase in their monthly mortgage payments. It's more common that the customer expects that a rate will start with a 6% than with a 4% so we are not finding that it's a huge shock.

Lenders have for a long time stress-tested mortgages, so as it currently stands, consumers generally still have some give in their monthly budget. We've seen energy costs significantly reduce since last year and the hope would be that by the end of this year we will start to see inflationary pressures ease.

The media have been brilliant at helping us set consumers' expectations and price-anchoring them.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Traditional buy-to-let in the London market is well and truly dead in the face of mounting interest rates. You see, if yields in London are around 3-5%, how could one qualify for a mortgage where rental affordability is stress tested at 7-8%? No wonder, those coming to an end of their fixed term mortgages will struggle to remortgage and a number of those properties will eventually come to the sales market.

However the impact of rising interest rates on the housing market is complex and multifaceted, and there are too many factors that could affect how the market responds. For example, if the economy ditches recession this year and job growth continues, borrowers may be better able to absorb the higher monthly payments after all. The demand for housing remains strong as ever, so house prices will continue to rise even in the face of these higher mortgage rates.
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Graham Cox
Director at Bridging Hub
Borrowers mortgaged up to the hilt means London-based homeowners and landlords are being particularly affected by higher interest rates. A lot will sell up, unable to stomach the eye-watering increases in their monthly payments. House prices will crash as a result. Possibly by 20% or more in the capital over the next year to 18 months. All this was entirely avoidable and predictable. It just needed politicians to recognise that allowing unchecked dirt-cheap credit for more than a decade was asking for trouble. All it would take was an inflationary shock like the one we're currently seeing to cause a world of pain.
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Joe Stallard
Director and Advisor at House and Holiday Home Mortgages
Unfortunately, like seemingly everything at the moment, mortgage rates have gone up sharply compared to the past few years. This means anyone in the middle of a fixed rate mortgage product can realistically expect their payments to increase when their fix ends. There may be some mitigating factors. Hopefully, they'll have paid off some of their mortgage and there's a chance that their property value might have increased. This could put them in a lower loan-to-value banding than before, which tends to offer more preferential rates. They may not be as low as they were, but this could offset some of the difference. Ultimately I'd urge clients not to wait. Get a feel for where payments are going to go on today's rates and look at budgets accordingly. At least that way they can be somewhat prepared for what's to come.
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Fanny Snaith
Owner at Fanny Snaith - Certified Money Coach
I have an interest-only mortgage on a buy-to-let property at 2.09% currently. It expires next January. The current payments are £672. Should I fix a rate at 4.5%, the payments will be £1443.75. This is not doable. As a landlord, I cannot increase the rent this much and my appreciated tenants would not be able to afford the rent anyway. This is just one property and it is NOT my home. There is trouble ahead.
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Gary Boakes
Director at Verve Financial
The major impact it will have is on people's lifestyles, which is likely to hit the businesses that have suffered over the last few years with Covid, namely pubs, restaurants and retail. With the increase in household costs and now the increase in mortgage payments by 20%-40% in most cases people are going to have to adjust their spending habits and the first to always go is our luxuries. If you are unable to give up the lifestyle then an increase in credit card and loan usage is likely. We have seen people looking to sell older properties to buy newer style houses for them to be cost-efficient and cheaper to run. The current interest rates we have are unlikely to ever again drop to the lows of last year, so people are going to have to get used to a change in lifestyle.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
There are many people who are going to come to the end of their ultra-low fixed rate and be faced with a market where a rate starting with a three is a good deal. Even for someone with a modest mortgage, that is going to mean a jump in the repayments, but you do have potential options to help mitigate the rise. The most obvious is to speak to a broker to make sure you are applying for the best deal you can. Next, have a long and hard look at the repayment term to see if you could potentially extend it and so reduce the payments that way. This may, of course, mean a re-think on your intended retirement age. If those options still leave you with an issue then, and only then, look at the option of moving some of the debt onto interest-only rather than a repayment basis, but do no more than you absolutely have to. You are kicking the can down the road, rather than solving the problem completely, with this option.
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Gary Bush
Financial Adviser at MortgageShop.com
Seeing the volume of existing mortgages in London that are coming off of their fixed rates in 2023 early last year, we started creating a system to automatically provide clients, in their inbox, with their existing lender options and the flipside open-market fixed rated choice. Thankfully this work was completed in time for the rate chaos at the end of last year caused by the mini-Budget and we are currently seeing it confirm fixed rate terms in the high 3% range to the first batch of these mortgage account holders who are in fear of being subjected to their existing lender's variable rates. We have found clients, on the whole, have taken the higher fixed rate situation in their stride and we definitely aren't yet seeing any signs of clients having to discuss defaulting on their mortgages.
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Amit Patel
Adviser at Trinity Finance
Forget the cost-of-living crisis, all thanks to the debacle of the Kwarteng/Truss budget, borrowers are now facing the 'cost of mortgage crisis'. The days of cheap lending are far gone and we won't return to cheap borrowing anytime soon.

Affordability will be crucial when borrowers are looking to re-mortgage to a cheaper deal, if the affordability doesn't fit they will have to stay with their existing lender. This may not be the cheapest deal available.

The ramifications of the budget have had a huge impact on people's finances and it's a real shame.
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Ashley Thomas
Director at Magni Finance
Most of the clients we deal with are in London. Naturally they will see the biggest increase in cost as the loans are predominantly higher than the rest of the UK. Every client we are currently in discussions with remortgaging are seeing a significant increase.

Although this does have an impact on everyone, high net worth clients have more disposable income and as such are not as worried with the increase.
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Bradley Lay
Founder at Peak Capital Group
As if inflation in double digits and sky-high energy costs weren't enough, those on lower incomes are about to be hit with another financial blow. The end of their fixed mortgage rate deals. For a £500k mortgage, a rate increase from 2% to 5% would mean an extra £650 per month - a huge burden for those already struggling to make ends meet. With buyers finding it harder to secure financing, sellers facing lower demand and prices, and the Brexit uncertainty still looming, the London property market could be in for a bumpy ride.
Buyers may find it harder to secure financing and may be forced to adjust their expectations when it comes to the properties they can afford. Higher mortgage rates could be the final straw for many would-be buyers, causing them to put their plans on hold and leading to a further slowdown in the property market For sellers, a slowdown in the market would force lower prices as demand softens, some will naturally fall into negative equity.
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Kevin Dunn
Mortgage and Protection Adviser at Furnley House
When clients were taking out 2% mortgages over the past 5 years, they would typically have been stress tested (affordability tested at higher rate to ensure they could withstand an increase in mortgage rates) at a much higher rate, likely to be 5% or more, so although it is far from ideal, these same people should be able to afford the mortgage payments as long as their circumstances have not changed massively. I would say, seek mortgage advice; do they have any savings which they could use to overpay, could they benefit from an offset mortgage, could they withstand the term being extended, for example? All these things we would consider, which could help bring down the mortgage payments.
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Rob Gill
Managing Director at Altura Mortgage Finance
Having been in the headlines for several months, higher mortgage rates and repayments are no longer a shock to savvy borrowers needing to remortgage. We're seeing an increasing number of enquiries from borrowers who might have gone straight to the bank, engaging with a broker instead to shop around for the best option. Those who start early, 6 months before their rate is due to expire, can lock in a rate and continue to monitor the market in case something better comes along, a strategy we've adopted for clients for a number of months.