Mortgage warning: 900,000 could see payments jump by £2,861 after Bank of England base rate decision if they fail to act

New research by Compare the Market reveals 937,433 homeowners who took out mortgages in 2023 could benefit from a decline in monthly payments as they come off two-year fixed-rate deals if they take action soon.

These homeowners could benefit from significant savings by locking in a new deal.

However, if homeowners don't act, they will simply revert to their lender's standard variable rate (SVR) at the end of their deal which means they could face a hefty £2,861 increase in their annual payments.

The average interest rate on a two-year fix has dropped from 5.06 per cent in 2023 to 4.6 per cent today. At the same time, the average interest rate for a five-year fixed-rate deal has decreased to 4.33 per cent, new figures from the Bank of England show.

These figures signal a potential opportunity for homeowners coming off their current fixed-rate mortgages to secure lower monthly payments, as rates are lower than they were in 2023.

Homeowners with an average mortgage debt of £178,523, based on a 30-year term, could experience the following changes in payments:

• 2023 Two-Year Fixed Rate: The average interest rate was 5.06 per cent, with monthly repayments of £965 and annual repayments of £11,579.
• 2025 Standard Variable Rate: If homeowners end up on the SVR, their monthly repayments could rise to £1,203, resulting in annual repayments of £14,440.
• 2025 Two-Year Fixed Rate: With the new average two-year fixed rate at 4.6 per cent, monthly repayments would decrease to £915, resulting in annual repayments of £10,982.
• 2025 Five-Year Fixed Rate: With the five-year fixed rate at 4.33 per cent, monthly repayments could drop to £887, with annual repayments totalling £10,639.

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If the Bank of England decides to cut interest rates further today, the rates could drop even more, providing even greater savings opportunities, however failing to lock in a fixed deal before one's rate ends could see their payments rise.

The current average SVR for mortgages in the UK is around 6.75 per centfor the "big six" lenders and 7.94 per cent across all lenders. It's important to remember that SVRs are variable rates set by lenders, and can change at any time

Households could potentially see their annual payments fall by £597 if they move to a new two-year fixed-rate deal, and for those who choose to switch to a five-year fixed-rate mortgage, annual savings could reach up to £940.

Guy Anker, Mortgage Expert at Compare the Market, said: "Anyone coming off a two-year fixed-rate deal may find their monthly payment could fall if they shop around for a new deal.

"If your mortgage deal is set to end this year, it’s wise to consider your options now as you can sometimes lock into a new deal up to six months before it is due to start.

"While there will be exceptions, it is often cheaper to get a new deal than move onto your lender’s standard variable rate, which tends to be much higher."

Waiting until the last minute could mean losing out on better deals and facing a significant jump in monthly payments.

Taking proactive steps now will ensure that homeowners secure a favourable rate before it’s too late.

Anker added: "Before looking around for a new deal, it’s essential that your credit score is up to scratch. A potential new lender will check how you’ve been handling debt and managing your finances over the past few years.

"It’s worth checking your credit file before making a new mortgage application in case there are any errors or past credit issues you don’t know about. In the meantime, it’s a good idea to keep up with all your payments."