Despite the welcome cut in interest rates by the Bank of England last week, nearly 70% of you face significant jumps in monthly mortgage repayments when your fixed-rate mortgage deals expire.
According to a new study by leading independent personal finance website www.fool.co.uk:
- 9 out of 10 of you are currently on special-rate mortgage deals
- You face a jump in mortgage rates from an average of 4.8% to 6.3%
- 1 in 20 of you intend to sell up and rent
The study also reveals that 91% of you are paying interest at around 4.8% on
fixed-rate or special mortgage deals. 65% of you took out your deals two years ago, and 17% of you fixed your special deals three years ago.
How low did rates go?
Interest rates for 4 out of 10 mortgages were fixed between 4.5% and 5%, and 1 in 5 mortgages were set at 5.0% and 5.5%. One in six of you managed to secure your special mortgage deals at 4.0% to 4.5%.
However, as we have mentioned many times before, over 1.4 million of you with fixed rate mortgages will see them come to an end over the coming months, which leaves you facing considerably higher mortgage repayments.
Apart from borrowers on fixed-rate mortgages, if you are a homeowner on a discounted mortgage, tracker mortgage or capped rate mortgage, then you could be facing significant hikes too.
The low-rate party comes to an end
Yep, sorry to be the bearer of bad news, but the days of low rate mortgage are well and truly over; 41% of you have been offered standard variable rate mortgages between 6% and 7%, and 29% of you will have repayments between 7% to 7.5%.
The average standard variable rate is now 6.3%; that's a full 1% higher than the Bank of England base rate.
Put it this way, on your typical 25-year repayment mortgage of £200,000 fixed at 4.8%, you are looking at monthly repayments of £1,146.
But every 1% rise in rates will increase your repayments by around £120 a month.
If you are on a standard variable rate mortgage at 6.3%, then you can expect your monthly repayments to jump £180 to £1,326 (which is quite a sum in anyone's pocket!)
As a result of higher repayments, over 5% of you intend to sell up and rent and the same percentage of you plan to pay off your mortgage over a longer period. 4% will take on extra jobs to cope and a third of you hope to move to other mortgage lenders.
David Kuo, Head of Personal Finance at Fool.co.uk, says:
"Many homeowners will feel the full force of the credit crunch when their special-rate mortgage deals come to an end. For a lucky few, another good deal will be just around the corner. "However, a significant number of homeowners will find that the myriad of choices that were once available has shrunk to no choice, as lenders limit their best deals to their preferred clients. But homeowners can lessen the shock by taking avoiding action now.
"Paying more than the amount your lender has stipulated while your special rate deal is still in place will chip away at the loan. And by getting your finances in order, lenders will be beating a path to your door rather than beating down your door."
So, while it's clear that the days of low rate mortgage deals are over, you shouldn't panic.
There are still some relatively good mortgage deals out there, especially if you use an impartial adviser who can search all mortgage lenders, some you may never have heard of, to find the best deal for your situation.
© www.fool.co.uk 2008
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