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An estimated 1.5 million fixed-rate mortgages are set to expire over the next year, forcing borrowers to take out new loans at much higher rates.
Many are currently sitting on two and five-year fixed-rated deals at two percent or even less. They could soon pay six or seven percent.
Last week, lender HSBC pulling most of its mortgage rates without warning, with Lloyds, Nationwide and others following suit.
Their new deals will cost a lot more.
As mortgage costs soar house prices may fall all the way to 2028. Recent buyers will be hardest hit and many risk falling into negative equity.
Selling up won’t be easy, as both prices and transactions plunge.
The first step for anybody coming to the end of a fixed-rate mortgage deal is to see if their lender can offer a competitive new deal.
Otherwise they should shop around for the best rate they can, using an independent mortgage broker who can advise across the entire mortgage market.
What borrowers mustn’t do is sit on their lender’s standard variable rate (SVR), which is the rate they automatially revert to when their original deal expires.
Most SVRs charge interest of more than 7.5 percent a year, and some charge as much as eight percent.
Somebody with a £200,000 mortgage over a 25-year term who switches from a two percent rate to an SVR charging 7.75 percent will see repayments jump from £1,272 a month to a staggering £2,266.
That’s an extra £994 a month, or £11,928 a year. That would ruin many.
Mortgage rates are set to climb higher with the Bank of England expected to increase base rates from today’s 4.5 percent to at least 5.5 percent.
As well as looking for the cheapest deal, worried borrowers should look to shrink their debt, too.
Using spare cash to make mortgage overpayments could make your money work a lot harder than leaving it in the bank.
It’s a simple trick but one many overlook.
READ MORE: ‘Simple’ mortgage option that can help pay off loan ‘quicker’
If you have pricey short-term debt such as an unpaid credit card bill on an APR of 20 percent or more, pay that off first. The interest you save will vastly exceed what you can earn in the bank.
Next, try to pay down your longer-term mortgage debt.
Making regular monthly mortgage overpayments can bring outsize savings.
If you owe £200,000 on a 25-year mortgage at six percent and overpay by £100 a month, you will pay off your mortgage four years and eight months earlier.
You will also save a staggering £32,021 in total interest over the term.
Overpay by £200 a month and you will save £54,079 in total interest and cut your mortgage term by six years and four months.
Whether your mortgage charges six, seven or eight percent, paying it off is the same as earning that amount of interest on a savings account.
Yet no account pays that much today, except one that pays nine percent but only on a tiny amount.
Alternatively, shrink that debt today by paying in a lump sum.
Most mortgages let borrowers pay off of up to 10 percent of their loan’s value each year, without incurring penalties (always check, or the charges could outweigh the savings).
Think twice before using all your spare cash to shrink your mortgage, keep some on hand for emergencies.
Or consider an offset mortgage, that allows you to use your savings to shrink your mortgage interest, while allowing you access to your money if required.
Accord Mortgages offers several offset options, only available through brokers.
Most homeowners should continue paying into a pension if they can, especially if belong to a workplace scheme with employer contributions.
But as mortgage rates soar, using spare cash to pay down that debt makes more sense than ever.
