Almost half a million UK homeowners face a significant financial shock this year as 5-year fixed mortgage deals secured at historically low interest rates during the pandemic era come to an end, according to new research from Compare the Market.

The study reveals that 469,192 households who locked into 5-year fixed rate products in 2020 – at an average interest rate of just 2.11% – are now approaching the expiry of those terms.

With many lenders’ standard variable rates (SVRs) now exceeding 7%, the monthly repayment implications are substantial.

SOARING PAYMENTS

Based on an average mortgage debt of £178,523, homeowners rolling off their fixed-rate deal and reverting to their lender’s SVR – currently averaging 7.13% – could see monthly repayments soar to £1,227, up £510 from the £717 they would have paid under their fixed-rate terms. This equates to an annual increase of £6,124, or a 67% rise in repayment costs.

Despite the Bank of England’s decision to lower the Base Rate on 8 May, average fixed-rate products – though easing slightly – remain well above 2020 levels.

CRITICAL TIMING

David Hollingworth, associate director at broker L&C Mortgages, said: “Although many homeowners have had to deal with the payment shock of their ultra-low fixed deal ending, fixed rates have improved recently as the rate outlook has improved.

“While this will ease some of the pain, hundreds of thousands will still be steeling themselves for a steep hike in their rate as their fix ends.”

And he added: “There could be temptation to wait in the hope of lower rates to come, but that carries the risk of falling onto a sky-high standard variable rate.

“With uncertainty in the market, rates are constantly moving and some have edged back up, so it can be a confusing time for borrowers.”

JUMP IN COSTS

Guy Anker, mortgage expert at Compare the Market, added: “Our research shows that around half a million homeowners locked in a five-year fix rate in 2020 when rates were low during the pandemic.

“Securing these deals may have saved households a significant amount of money over the past five years. However, as they reach the end of their fixed rate, these households may now face a substantial jump in mortgage costs.”