Disposable income hit for borrowers coming off fixed mortgage deals this year

The Bank of England raised interest rates four times in the first six months of 2022, and mortgage providers have increased their rates on both fixed and standard variable rate mortgages. Where does this leave homeowners and landlords whose fixed-rate deals are coming to an end?

As many as three quarters of mortgage customers, including almost all recent borrowers, are on fixed rates. Of these, 1.3 million are set to reach the end of their fixed-rate deals this year and, unless they remortgage, will move on to their lender's standard variable rate.

At the same time, wage rises are failing to keep up with inflation -- leaving households with less money to spend.

Taking into account the increased cost of living and higher rates on new mortgages, customers who come off fixed-rate mortgages this year and switch to a new deal will see their disposable income shrink by around 7%, according to a new analysis by UK Finance.

The good news is that the typical borrower will still have over a quarter of their disposable income left after subtracting mortgage payments, basic household expenditure and credit commitments.

However, 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.

"Although these borrowers' remortgaging options on the open market may be more limited, the widespread availability of internal product transfer deals means almost all will be able to access a new mortgage deal at competitive rates," the trade association added.

Separate research from estate agent comparison site GetAgent suggests that the percentage of household income required to cover mortgage costs has risen significantly in recent years due to an increase of 65% in average house prices.

In 2022, the percentage of disposable income required to cover the average mortgage repayment has climbed to 27.6%.

"We've now seen a number of interest rate hikes in quick succession, and this will understandably come as a worry to the nation's homebuyers, who will be facing higher mortgage costs as a result," said GetAgent chief executive Colby Short.

"However, this isn't the driving factor behind a lack of housing market affordability, and, in fact, the cost of borrowing remains low when compared to the rates seen a decade ago. At the same time, the average household is benefiting from a greater level of disposable income, but despite this, a larger proportion is required to cover the cost of a mortgage.

"This increase is being driven by house price inflation, with the average buyer paying almost £109,000 more than they were 10 years ago."

Any customers who are concerned about their ability to keep up with their mortgage payments should contact their lender as soon as possible, UK Finance said.

"The industry stands ready to help with a range of forbearance tools that can be tailored to best suit customers' individual circumstances."