The new analysis comes from Moneyfacts
Millions across the UK have been cautioned that delaying a key decision could prove to be an expensive error.
Fresh analysis indicates that should the Bank of England be compelled to lift interest rates once more, borrowers could face hundreds of pounds in additional annual costs – with those postponing decisions especially vulnerable. Research from Moneyfacts revealed that a quarter-point increase in the Bank’s base rate would add approximately £450 annually to repayments on a typical £250,000 mortgage over 25 years. A half-point rise would drive yearly costs up by £906.
The alert comes despite mortgage rates softening slightly from the highs witnessed earlier this year. Two-year fixed rates soared to an average of 5.90% in April while five-year fixes reached 5.78%, amid market upheaval and inflation concerns. While rates have since dropped to 5.62% and 5.59% respectively, they remain elevated compared to early March.
Moneyfacts finance expert Rachel Springall suggested borrowers expecting dramatic mortgage rate reductions may face disappointment.
She said: “Indecisiveness could be the biggest enemy for borrowers this year. It is highly unlikely that lenders will make substantial cuts in the months ahead until there is a clearer path for future rate setting.”
Her remarks will worry the millions of homeowners scheduled to exit ultra-cheap fixed-rate deals secured during the pandemic when mortgage rates were frequently below 2%. According to Moneyfacts, someone arranging a £250,000 five-year fixed mortgage today would pay roughly £4,700 more annually than a borrower who secured the identical loan back in 2021.
The data also underscores how lenders have been sluggish in passing on previous Bank rate reductions. The Bank of England slashed the base rate to 3.75% in December last year. Yet over the subsequent six months, the average standard variable rate dropped by a mere 0.14 percentage points, from 7.27% to 7.13%.
Over the past year, while the base rate has fallen by 0.75 percentage points, the average SVR has declined by just 0.35 points. Ms Springall cautioned that uncertainty surrounding inflation and global events means mortgage rates are unlikely to drop significantly in the near future.
Markets remain jittery about inflationary pressures and the economic consequences of ongoing conflict in the Middle East – factors that could make policymakers reluctant to cut rates aggressively.. Borrowers trapped on costly standard variable rates face some of the steepest bills.
Moneyfacts estimates that a homeowner with a £250,000 mortgage could save approximately £2,800 annually by switching from the average SVR of 7.13% to a typical two-year fixed deal priced at 5.62%.
Ms Springall suggested many borrowers may be better placed securing a new deal three to six months before their current fix ends, rather than taking a gamble on rates falling considerably. She added: “Any further unexpected rises will hit those who have sat on the fence before refinancing.”
The analysis also suggests first-time buyers could be particularly vulnerable if rates climb once more. On a £250,000 mortgage, a shift from 5.5% to 5.75% would add roughly £450 to yearly repayments, while a jump to 6% would cost approximately £906 extra annually.
Despite expectations that borrowing costs will steadily decline, Moneyfacts indicated there is scant evidence that lenders are gearing up for a significant mortgage price war.
The cheapest two-year fixed deals from leading lenders including Barclays, HSBC, Lloyds, NatWest and Santander presently average around 4.41%, only marginally beneath levels witnessed during the spring market upheaval. For borrowers holding out for a dramatic fall in rates before taking action, the message from analysts is increasingly evident: the greatest risk may be inaction itself.
