Former fixed rate mortgage holders could see repayments rocket
Interest rates over the past year have risen by a full one percent, following four 0.25% interest rate rises in August and November of last year and in January and May of this year. The interest rate in August last year stood at 4.5%, and is now at 5.5%, with many homeowners having seen their variable rate mortgage repayments soar. Those on fixed rate mortgages have been protected from the rate rises, but in some cases this may not be for long.
Many homeowners that took out a fixed rate mortgage two or three years ago could see the fixed rate period coming to an end, and therefore could see their repayments suddenly rocket. Although these homeowners could switch to another fixed rate deal, the fixed interest rate will be based onto the base rate of today, and will therefore be much higher than the rate at which their current mortgage loan is fixed. According to some experts around a million homeowners are likely to find themselves facing hugely increased repayments over the next year as their fixed rate term comes to an end.
There are concerns that this could result in increased repossession and bad debts, as customers that have been enjoying low interest rates since taking out their fixed rate mortgage have to suddenly find extra money each month to pay their mortgage loan at the increased repayment amount. One banking analyst stated: 'For some customers we see a 25-30% increase in interest payments.' He anticipated that many of these homeowners would really feel the financial pinch of four interest rate rises suddenly being applied to their low interest rate mortgage, and this could mean a huge financial struggle that could end up with some facing losing their home.
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