Millions set for mortgage payment shock this year

Mortgagors refinancing over the next year will continue to see a big jump in their monthly repayments, but the hit is expected to be smaller than it was three months ago.

According to figures from the Bank of England, the 1.4m people coming off fixed-rate mortgages over the next 12 months will have to pay, on average, an extra £150 a month.

Although this is a hefty increase, it represents an improvement on the Bank’s previous estimate in June. Then, it projected that mortgagors would have to pay an extra £180 per month.

This decrease largely reflects the fact that markets expect the Bank of England to reduce rates at a faster pace than they did in June.

The Bank of England cut interest rates for the first time since the pandemic in August and Governor Andrew Bailey has suggested there will be more cuts before the end of the year.

Although Bailey has suggested that the Bank needs to be cautious, markets are pricing in more aggressive rate reductions than the Bank’s guidance implies.

The path for expected Bank Rate, which acts as an anchor for mortgages, has fallen by around 75 basis points compared to the second quarter of this year.

In response many of the UK’s largest lenders have slashed rates in recent weeks in an attempt to attract customers.

Chris Sykes, technical director at Private Finance, said there had been “positive momentum” in the mortgage market since the Bank’s September meeting, when the Bank Rate was left at five per cent.

“In addition to several lenders continuing to introduce rate cuts, a noticeable trend amongst lenders is the increase in maximum loan-to-income (LTI) ratios,” he said.

Around 3m mortgage borrowers, roughly a third, have not yet refinanced since interest rates have increased and will have to do so before 2027. Most of those are on sub-three per cent rates.