Martin Lewis has warned people with fixed rate mortgages of what he sees as a ‘ticking time bomb’ for them if their deal ends soon. Predicting a rise in interest rates, the finance guru fears this will have a lasting impact on homeowners.
The Money Saving Expert founder explained that many families could struggle when trying to negotiate a better deal after their current mortgage expires, with some facing the prospect of not passing affordability checks. These are designed to determine if a customer who wants a mortgage can afford it.
Homeowners with fixed-rate deals that track Bank of England interest rates may need to make larger payments. And if they fail to get a better deal because they can’t pass affordability checks, they could be forced to pay high and fluctuating interest rates as well as fight the cost crisis of life in all areas of their finances, reports WalesOnline.
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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.”
Although Martin generally avoids making predictions, he told viewers of the show that he believes interest rates will rise further in the future. The Bank of England raised rates to 1% last month in a bid it says to help reduce inflation, which is expected to hit 10% later this year.
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.”