Money Saving Expert founder Martin Lewis has issued a stern warning to anyone with a fixed rate mortgage that could soon end. The finance guru fears that a possible rise in interest rates will have a lasting impact on homeowners.
That, he says, could mean that many families who currently have fixed-rate mortgages could struggle to pass affordability checks once their current contract expires. Checks are designed to see if customers can afford a mortgage.
The change could leave homeowners on mortgage plans that track Bank of England interest rates. This often means fluctuating prices.
Speaking on his Martin Lewis Money Saving Show, the financial expert said: “We are clearly in the midst of a cost of living crisis so everyone has less room than before because of other costs have gone up My big fear is that we will see interest rates go up and fewer people will be accepted when they apply for a cheap mortgage as many will fail the affordability checks.
“That leaves us with a ticking time bomb because most people are going to have cheap fixes. And they’ll expect that in the end they can fix again at the same pace.
“But the rate is likely to be much higher. And they may not be able to get them and that’s a real problem coming up.”
The financial guru tends to avoid making predictions about the future of the market. However, he told viewers that he expects interest rates to rise further.
The Bank of England raised interest rates to 1% in May. He says the move was designed to help inflation – which is expected to hit 10% later this year – to come down.
The Bank of England said: “If you have a loan or mortgage which charges you a variable interest rate, you may find that the cost of your repayments increases. Say you have a mortgage of £130,000 you want to repay over 25 years If the interest rate on the mortgage is 2.5%, the monthly repayment will be £583.
“But if the interest rate is 0.25% higher – the amount we increased the discount rate in May 2022 – the monthly repayment increases by £17 to £600. If you’re on a fixed rate, you won’t see any changes until the end of your fixed period.”