Image above: Terraced houses in Chiswick; photograph Anna Kunst
Borrowers face huge hikes in mortgages as millions of fixed rate mortgages end over the next year
Millions of people are facing huge increases in their mortgages over the next year.
“There is a mortgage storm brewing” says Chiswick based independent mortgage adviser James Corden, of Fairfield Finance. “There is a whole chunk of mortgages coming off fixed rates before the end of next year.”
There were news stories about this last year when the interest rates started leaping up, but it is only now that the financial reality is starting to have an impact on people.
According to the Office of National Statistics there are 1.4 million borrowers who have already come off fixed rate deals in 2023 or will do before the end of the year, but there are 2.4 million more deals due to end in 2024.
Interest rates have risen from a historic low of 0.1% in March 2020 to the current 5.25%, leaving thousands of homeowners coming out of fixed term deals facing huge increases in their monthly mortgage payments.
Because people tend not to look at the details until the last minute, when their deal is about to run out, many are unaware of the financial impact which is about to hit them, says James. Someone who is currently on a five-year fixed rate of 0.75% could see their mortgage jump from under £500 to over £2,500.
Mortgage rates shot up last year after Liz Truss and Kwasi Kwarteng’s disastrous budget sent shock waves through the financial industry. James has been a financial advisor since 1990 specialising in the mortgage sector. In his opinion mortgages are steadying at the moment, but the market has not fully stabilised yet.
Image above: James Corden
What to do? Take a more expensive short-term fixed rate deal, or a cheaper longer-term deal?
Mortgage holders whose fixed rate deals are about to run out will need to weigh up whether they are better off taking a two-year fixed mortgage or one of the cheaper, longer term deals that are available.
“We are now seeing five and ten-year fixed rates being reduced. Shorter term agreements used to be cheaper, but now they are more expensive.”
A mortgage may cost £1,800 a month on a five-year rate whereas the same amount of borrowing may cost £2,000 a month on a two-year fixed rate.
The gamble is whether to agree to pay more in the short term in the hope that rates will come down, or to go for a cheaper deal in the expectation that rates will remain high or even go up further.
“People think it can’t go up much higher, but when I started out as a financial adviser in 1990 the interest rate was 15% and a lot of people got caught out” says James.
Interest rates reached an all-time high of 17% in November of 1979.
The risk is that if rates do come down, you will be stuck paying over the odds for borrowing. All these deals have penalties for pulling out early. They also have product fees which have to be taken into consideration. So what should people do?
“There is no right answer to that” says James.
“It depends on the individual and how they see things.”
The advice he gives is what other reputable financial advisers are also saying:
“It is better to be certain in uncertain times”.
If you know what your mortgage payments are going to be, you can plan accordingly and avoid nasty unexpected shocks.
So far, he has not seen clients sell their homes rather than remortgage.
“There are investment clients who have sold because it’s not worth it. I haven’t seen in in residential yet, but it will happen.”
He also advises that you don’t wait until the very last minute to think about it.
“Most lenders will allow you to change within six months of the end of the deal.”
Labour’s Rachel Reeves offers “more stability”
Like former Bank of England Governor Mark Carney, James likes the look of Labour’s finance spokesperson Rachel Reeves’ proposals.
Mark Carney, who was appointed by Conservative Chancellor George Osborne and served Boris Johnson also (2013 – 2020), made waves when he endorsed Rachel Reeves’ “serious” financial proposals in a video message to the Labour Party conference, saying it was “beyond time” her plans were put “into action.”
“She’s offering more stability” says James. “She is talking about bringing back stability and growth. Her plans for housebuilding will see prices start to come down. Stability is what we need. Boring is good for money markets.”
It used to be the case that 25-year mortgages were the norm, but most new borrowers now opt for 35-year loans. The overall cost of the mortgage is significantly more, because of the interest payments, but young people particularly are taking them out because the monthly payments are lower.
The government may announce an extension of its mortgage guarantee scheme in the Autumn Statement on 22 November, as a way of helping for first-time buyers. The Treasury is reported to be considering making the scheme, which makes it enables people to take out a mortgage with a five percent deposit, available for another year.
Image above: Houses alongside Dukes Meadows; photograph Anna Kunst
After 30 years in the business James now finds he is advising the children and grandchildren of his original clients
James Corden often gets disappointed looks when he checks-in to a hotel – not because of how he looks but because of who he isn’t. James has been offering mortgage advice in west London for more than 30 years. He may not be as well-known as the entertainer, but the is of considerably more use if you are trying to work out what to do when buying a mortgage.
Most of his clients are by referral, so he now finds himself advising the children and even grandchildren of his original clients.
As an FCA approved Mortgage Advisor he suggests mortgage solutions for individuals from the 200+ plus mortgage lenders, and their products, across the UK market, unlike the mortgage advisers attached to banks who offer their products, or those affiliated with estate agents, who also tend to have preferred trading partners.
“It can be baffling for many people to know where to start and what’s best for them in terms of mortgages. Especially in the current climate, when rates recently increased by over 60%. But also for more financially savvy clients who want to check on the best deals right now, we offer clients a view of the market and bespoke solutions.
“I don’t charge up-front fees for my services on the basis that clients tell me what their circumstances are & I offer them the best current deals proceeding through to placing a mortgage for them – at that stage I get a placement fee from the lender.”
As a long-term Chiswick resident you may also have seen him in a completely different role, as a ski instructor at Dukes Meadows, or flipping burgers at Chiswick House Dog Show.
You can email James at firstname.lastname@example.org.
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