The trapped homeowners: ‘We have to absorb the loss’

When Lucy Weston bought her first flat, she could not have been more delighted. She loves her two-bedroom Art Deco home, enjoyed fixing it up, and her £ 885 per month mortgage payments were only marginally more than she had been paying to rent a room in a shared house.

“I was so happy,” says Weston. “I kept thinking: this is too good to be true.”

She was right. Two years on and she is one of the hundreds of thousands of people who have seen their household costs soar when they remortgaged due to rising interest rates. Gallingly, within weeks of securing her deal, rates began to fall again.

Weston, 46, bought the flat in Crystal Palace, south- east London, in autumn 2021 after years of renting. “I think that it is just drummed into you that you have got to get onto the property ladder,” she said. “Also, I was getting older and was really fed up with flat sharing.”

The property cost £305,000 and in that first year Weston, a freelance TV producer, was busy with work and could easily cover her mortgage and home improvements, plus multiple holidays. By late 2022 she was aware a storm was gathering. After years of record low interest rates, the Bank of England began raising the base rate shortly after she bought the flat. By December 2022 it had hit 3.5pc, and the rises continued into 2023.

Simultaneously, work began to dry up. Last year’s writers’ strike slowed global film and TV production down; in September union Bectu reported that three quarters of freelance workers in the industry were out of work.

By last autumn Weston was gearing up to remortgage in November 2023, by which time the Bank Rate had peaked at 5.25pc. “I was panicking, to be honest; everything was coming to a head,” she said. Her lender valued her property at £319,000, reflecting the stagnant sales market between 2021 and 2023. Her adviser suggested she pay for a surveyor to do a more thorough valuation, in the hopes that it would reflect the improvements she had made to the property. A higher valuation would help her secure a lower interest rate.

When the survey came back it was for a disappointing £ 270,000. After much negotiation she was offered another two-year deal, at 5.7pc. Her payment is £ 1,421 per month, a jump of more than £500.

Since then, inflation has dropped off.

Economists believe the Bank will start cutting rates again later this year.

“It is so frustrating, I missed out by a month,” said Weston. She feels her best option is to stick it out, thus avoiding exit penalties and remortgaging costs. To make ends meet, Lucy’s mother is giving her £300 per month. “As soon as I get something I will be fine,” she said.

Paulomi Debnath is also cursing the timing which saw her lock into a 5.45pc mortgage last summer. The change doubled monthly repayments on a rental property she and her husband own in Benfleet, Essex.

The couple bought the two bedroom flat in 2019, for £148,000. They were able to secure a mortgage deal at a competitive 2.09pc. Last summer, they had to remortgage and the best deal they could find was 4.93pc. Their monthly outgoings jumped from just under £200 to almost £500 per month.

“It has doubled,” said Debnath, 44, a fabric jewellery designer and founder of Handmade by Tinni. “We couldn’t put the rent up because we have a oneyear rental agreement. Our profit is drastically reduced.”

At the tail end of 2023, Debnath did consider buying out of the mortgage but calculated the cost of exit fees plus arrangement fees at around £3,500. “We are stuck like this until 2025 when we will renegotiate again. I am just thankful we went for a two-year and not a five-year deal.”

It is estimated that up to 1.5 million households will see mortgage deals end this year and face higher costs.

Ray Boulger, of broker John Charcol, said: “The worst thing you can do is to go onto a standard variable rate.”

Boulger is also unimpressed by mortgages which go up and down in line with the base rate. “Trackers look quite expensive at around 5.5pc, even if you have plenty of equity,” he said.

That leaves the real choice: whether to fix for two or five years. Right now two-year mortgages are around half a percentage point more expensive, although this cost could be cancelled out if interest rates fall as expected.

If you plan to move house soon, Boulger thinks two-year deals, to give you greater flexibility. If you are staying put, then a five-year deal is sensible, even at current rates. “It gives the comfort of certainty,” he said.

‘We are stuck now until 2025. I am just thankful we went for a two-year and not a five-year deal’