Mortgage payments could surge by more than £3,000 annually in a worst-case scenario if expenses continue to escalate due to the ongoing Iran conflict, as per recent analysis.
The conflict has led to an increase in mortgage expenses as lenders have foreseen that interest rates will not decrease as previously predicted.
Moneyfacts has examined the Bank of England’s recent stress test scenarios to determine the potential rise in inflation.
In a favorable scenario, with inflation peaking at 3.6% this year and dipping below 3% next fall, homeowners may face additional costs ranging from £150 to £1,050 per year.
In a moderate scenario, where inflation hits 3.7% and remains elevated, mortgage holders could incur an extra expense of £1,050 to £1,950 annually.
However, in the worst-case possibility of inflation reaching 6.2%, households might have to pay an additional £3,380 per year.
Recent Moneyfacts analysis reveals that the average two-year fixed-rate has surged from 4.83% in early March to 5.77% presently. Similarly, the average rate for a five-year deal has climbed from 4.95% to 5.68% during the same period.
Adam French, Head of Consumer Finance at Moneyfacts, emphasized the potential economic impact of the Iran conflict, as indicated by the Bank of England’s ‘Trumpflation’ stress scenarios.
According to the Bank of England’s latest report, monthly payments are expected to increase by around £80 over the next three years.
Approximately 53% of UK mortgage holders are likely to witness payment hikes, but about 25% of those on higher fixed rates could see reductions. Over seven million homeowners are on a fixed-rate mortgage.
French advised borrowers to secure a new mortgage deal now as a precaution against future rate hikes, suggesting that most lenders allow locking in a new rate up to six months before the current fixed rate expires.
He also recommended exploring flexibility options with brokers or lenders, such as extending the mortgage term to lower monthly repayments, albeit at the cost of increased total interest over the loan’s lifetime.
In a fluctuating market, being proactive and keeping options open can significantly impact borrowing expenses.
