Alert to millions in UK as they could face £450 cost | Personal Finance | Finance

Millions of homeowners and would-be buyers have been warned that sitting on the fence over a mortgage deal could prove a costly mistake.

New analysis suggests that if the Bank of England is forced to raise interest rates again, borrowers could be left hundreds of pounds worse off each year – with those delaying decisions particularly exposed. Research from Moneyfacts found that a quarter-point rise in the Bank’s base rate would add around £450 a year to repayments on a typical £250,000 mortgage over 25 years. A half-point increase would push annual costs up by £906.

The warning comes despite mortgage rates easing slightly from the peaks seen 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 turmoil and fears over inflation. Although rates have since edged down to 5.62% and 5.59% respectively, they remain higher than at the start of March.

Moneyfacts finance expert Rachel Springall said borrowers hoping for dramatic cuts in mortgage rates may be disappointed.

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 comments will concern 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 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. Ms 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 continuing conflict in the Middle East, factors that could make policymakers wary 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%.

Ms 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.