Disposable income to plunge for remortgaging homeowners

HOMEOWNERS remortgaging this year could see their disposable income fall by more than a quarter as rising interest rates cause massive jumps in mortgage costs.

A total of 1.3 million households will come to the end of their fixed-rate mortgage deals this year and will have to remortgage to higher interest rates, according to UK Finance, the banking trade body.

The Bank of England’s five consecutive interest rate rises since December, combined with soaring inflation, mean that these households will see “massive” drops in the money they have left over after tax and bills, experts warned.

Of the 1.3 million, an estimated 429,000 are coming to the end of twoyear fixes. These borrowers took out mortgages when interest rates were at an all-time low of 0.1 per cent during the pandemic, compared to 1.25 per cent today, and will see the biggest jumps in their borrowing costs. A person earning £65,000 with a two-year fixed-rate deal that expires this year will see their disposable income fall by 23 per cent when they remortgage, after accounting for the cost of living and higher mortgage rates, according to analysis by The Sunday Telegraph of UK Finance figures.

This means the money left over after tax, basic household expenditure and credit commitments will fall from £27,086 to £20,839 – a drop of £6,247.

If these borrowers do not remortgage, they will move onto their lender’s “standard variable rate”, which is likely to be far higher.

Lower earners will see even larger proportionate drops. A person earning £35,000 with a two-year fixed-rate deal that expires this year will see their disposable income drop by 27 per cent. Instead of having £12,222 leftover, they will have only £8,894 – a loss of £3,329.

James Tatch, of UK Finance, said: “It is massive. But then we have not had anything like this in my lifetime. There is no precedent in recent history, we are in unknown territory.”