Millions of homeowners and would-be buyers in the UK have been warned that delaying a mortgage decision could prove to be an expensive error. New analysis suggests that if the Bank of England is compelled to raise interest rates once more, borrowers might find themselves hundreds of pounds worse off annually, with those postponing decisions particularly vulnerable.
Research from Moneyfacts indicates that a quarter-point increase in the Bank's base rate would add roughly £450 per year to repayments on a typical £250,000 mortgage over 25 years. A half-point rise would push annual costs up by £906.
This caution comes even as mortgage rates have eased slightly from the peaks observed earlier this year. Two-year fixed rates surged to an average of 5.90% in April, while five-year fixes hit 5.78%, amid market turbulence and inflation concerns. Although rates have since dipped to 5.62% and 5.59% respectively, they remain higher than at the start of March.
Moneyfacts finance expert Rachel Springall stated that borrowers hoping for significant cuts in mortgage rates may be let down. She remarked: "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 comments will alarm the millions of homeowners due to come off ultra-cheap fixed-rate deals taken out during the pandemic, when mortgage rates were often below 2%. According to Moneyfacts, someone taking out a £250,000 five-year fixed mortgage today would pay around £4,700 more each year than a borrower who secured the same loan in 2021.
The figures also highlight how lenders have been slow to pass on previous Bank rate reductions. The Bank of England cut the base rate to 3.75% in December last year. Yet over the following six months, the average standard variable rate (SVR) fell by just 0.14 percentage points, from 7.27% to 7.13%. Over the past year, while the base rate has dropped by 0.75 percentage points, the average SVR has fallen by only 0.35 points.
Springall warned that uncertainty over inflation and global events means mortgage rates may not fall much further in the near future. Markets remain nervous about inflationary pressures and the economic impact of ongoing conflict in the Middle East, factors that could make policymakers cautious about cutting rates aggressively.
Borrowers stuck on expensive standard variable rates face some of the biggest bills. Moneyfacts estimates that a homeowner with a £250,000 mortgage could save around £2,800 a year by moving from the average SVR of 7.13% to a typical two-year fixed deal priced at 5.62%. Springall said many borrowers may be better off securing a new deal three to six months before their current fix expires rather than gambling on rates falling significantly. 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 rise again. On a £250,000 mortgage, a move from 5.5% to 5.75% would add about £450 to annual repayments, while a rise to 6% would cost around £906 extra a year.
Despite hopes that borrowing costs will gradually ease, Moneyfacts said there is little sign that lenders are preparing for a major mortgage price war. The lowest two-year fixed deals from major lenders including Barclays, HSBC, Lloyds, NatWest and Santander currently average around 4.41%, only slightly below levels seen during the spring market turmoil. For borrowers waiting for a dramatic drop in rates before acting, the message from analysts is increasingly clear: the biggest risk may be doing nothing at all.
