Disposable income hit for homeowners with fixed mortgage deals about to expire

Homeowners coming off fixed-rate mortgages this year and shifting to a new deal can typically expect to see their disposable incomes shrink by 7%, analysis by a trade association suggests.

The expected decrease in the amount of income that households will have left over to spend and save at their discretion is due to a combination of rising mortgage interest rates and the surging cost of living.

UK Finance said it is expecting some upwards pressure on mortgage arrears as cost pressures tighten, particularly among households on lower incomes. According to UK Finance, 1.3 million customers are set to reach the end of their fixed-rate deals this year and, unless they re-mortgage, they will move on to their lender’s standard variable rate (SVR).

A “trends in the economy and lending” analysis paper published by UK Finance said:

“On average, we estimate the combined impact of cost-of-living and re-mortgage onto a new deal would result in around a 7% decrease in their free disposable income.”

The impacts vary significantly, depending on when the previous mortgage was taken out, UK Finance said. Five and two-year fixed-rate deals account for around two-thirds of those fixed rates maturing in 2022. Around 9% of those whose fixed rates are due to end this year, or around 117,000 borrowers, will have less than 10% of their income left over as disposable income after moving to a new deal, UK Finance estimates.

Whether you are coming to the end of your mortgage product or keen to compare your current rate to the best available elsewhere, please contact your financial planner who can put you in touch with our mortgage partners.

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Source: Techlink.