Homeowners looking to remortgage three-year-old deals this year will see their monthly payments double in new agreements, says Deutsche Bank.
However, the German investment bank points out that home loans signed before 2022, and after 2023, will act as a cliff edge for how consumers react to current home loan deals in the market.
The bank estimates around £25bn of homebuyers will refinance deals by mid-2027, with UK Finance forecasting that 1.8 million customers will strike new agreements this year.
The key cut-off date is the 15 September 2022 Liz Truss mini-Budget, which sparked a meltdown across UK financial markets that led to hikes in mortgage rates, a fall in the value of the pound, the danger of widespread failure across the pensions industry and rises in the cost of UK government borrowing.
Deutsche Bank senior economist Sanjay Raja says that customers refinancing mortgages secured before 2023, and on longer duration mortgages, “will see their mortgage rates rise from below 2% to over 4% — roughly doubling their interest payments”.
But Raja adds that “the big wave of interest cost increases has already come and gone” because “many on two-year mortgage rates have already transitioned to higher interest mortgage products”.
The economist argues in a note to clients on Friday that “not all refinancing will see a big rise in mortgage rates” because “the impact via higher interest costs will vary”.
He adds: “Indeed, those households who took out mortgages after 2022, will likely see very little change in their new mortgage rates when it comes time to refix.”
Raja says that while “mortgage refinancing costs will undoubtedly be painful for some in the coming years,” the “peak in aggregate interest cost payments increases” is likely to have already passed.
But he adds: “Some drag on consumption will likely settle in as this happens, but the impact, we expect will be modest – particularly if rates move even lower in the coming years.”
The two-year residential term hit 4.99% on 13 August, the first time it has fallen under 5% since 29 September 2022, when it was 4.87%.
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