Many of UK families must choose between locking in a higher fixed-rate arrangement and betting on a Bank of England rate decrease ahead of a major remortgaging deadline.

Many of UK families must choose between locking in a higher fixed-rate arrangement and betting on a Bank of England rate decrease ahead of a major remortgaging deadline.

According to industry organisation UK Finance, 56,220 two-year fixed-rate mortgages are set to expire in September. This follows a surge in sales in September 2021, when homebuyers rushed to close transactions before a stamp duty exemption expired.

Mortgage borrowers may usually find new bargains six months prior to their fixed-rate loans come to an end. Since January, as many as 71,100 homes have been looking for bargains in preparation for another busy deadline in June, which is linked to a different sales frenzy in 2021.

The BoE’s attempt to control inflation has raised mortgage rates, pushing Brits to look for savings elsewhere in the mortgage market. The move away from fixed-rate mortgages has come to a stop, as families turn to tracker agreements — a sort of variable credit that normally tracks interest rates — in the hope that the central bank will eventually cut borrowing prices at the end of this year.

According to Moneyfacts Group, the average two-year fixed-rate mortgage was 5.32% on April 11th, over two times more than in September 2021. In comparison, the average two-year tracker agreement last week was 5.05%, implying lower monthly payments for variable loan holders even after a protracted BOE hike cycle.

For what it's worth, sure, homeowners who remortgage on a fixed-rate mortgage are likely to profit from a lower loan-to-value ratio than when they originally obtained a mortgage. This is because, according to Nationwide Building Society, UK property values have risen by more than 11% since March 2021, and households have paid off a significant amount of money in the previous two years.

Importantly, high-LTV financing accounts for a modest proportion of UK mortgages, accounting for roughly 5% of all new house loans in the fourth quarter of 2022, according to BOE statistics. Even borrowers who take out a 90% LTV in September 2021 are expected to have increased expenses offset by faster pay growth, according to Iwona Hovenko, a Bloomberg Intelligence analyst covering European real estate.

"Homeowners who took mortgages at 90% LTV in 2021 could now see it drop to 75%," she explained. Furthermore, "the extra post-tax pay after just two years could more-or-less offset the cash increase in monthly mortgage repayments."

(bloomberg.com, moneyfactsgroup.co.uk, nationawide.co.uk)