Money Saving Expert founder Martin Lewis has issued a stark warning to anyone on a fixed-rate mortgage that could end soon. The financial guru fears a possible hike in interest rates could have a lasting impact on homeowners.
This, he says, could mean many families who are currently on fixed-rate mortgages could struggle to pass affordability checks once their current deal expires. The checks are designed to see whether customers can afford a mortgage.
This change could leave homeowners on mortgage plans that follow the Bank of England interest rates. This often means fluctuating prices.
Speaking on his Martin Lewis Money Saving Show, the financial expert said: "We are clearly in the midst of a cost of living crisis so everybody has less room than they did before because other costs have gone up. My great fear is we're seeing interest rates going up and fewer people are going to be accepted when they apply for a cheap mortgage because many are going to fail the affordability checks.
"That leaves us with a ticking timebomb because most people are going to be on cheap fixes. And they're going to expect when they end, they are going to be able to fix again at the same rate.
"But the rate is likely to be a lot higher. And they may not be able to get them and that is a real problem coming forward."
The financial guru tends to avoid making predictions about the future of the market. However, he told viewers he does expect interest rates to rise further.
The Bank of England raised interest rates to 1% in May. It says this move was designed to help inflation - which is expected to hit 10% later this year - fall.
The Bank of England said: "If you have a loan or mortgage that charges you a variable interest rate, you might find that the cost of your repayments go up. Say you have a £130,000 mortgage that you want to pay off over 25 years. If the interest rate on the mortgage is 2.5%, the monthly repayment will be £583.
"But if the interest rate is 0.25% higher – the amount we raised Bank Rate in May 2022 – the monthly repayment rises by £17 to £600. If you’re on a fixed rate you won’t see any change until the end of your fixed period."
