The looming fixed rate mortgage crunch could see over-55s forced back to work as they struggle with affordability worries, new research from Key has revealed.
The equity release adviser said almost four out of five (79%) over-55s with fixed rate mortgages are concerned about being able to afford repayments once their current deal comes to an end.
For as many as one in five (22%), the crunch is likely to come within a year when their current deals run out. According to the Office of National Statistics, most fixed rate deals ending in 2023 were set below 2%, with borrowers now facing a sharp 5.65% jump.
In the face of rising mortgage costs, nearly a quarter (23%) of over-55s admitted they may have to return to work or work longer hours in order to afford their mortgage. A similar number (22%) do not believe they can manage a rate of 6%-plus. A fifth are worried they may go into arrears on their mortgage, while 21% admit they haven’t dared to think about their situation and 17% may have to downsize or sell their home to meet repayments.
However, almost a quarter (23%) say they are confident they will be accepted for the best possible rate for their situation when their deal ends, while 25% hope they will be. Around 15% plan to go on to their lender’s Standard Variable Rate and then look for a better rate when the market environment changes and 7% will stay on the SVR.
Will Hale, CEO at Key, said: “Most over-55s with mortgages have been protected from the impact of the Bank of England’s series of rate rises as they have been on fixed rate deals with many paying less than 2%. Unfortunately, that era of low mortgage rates is over. Many older homeowners are now heading for steep increases in their monthly repayments and, particularly given the continuing increases in other cost of living expenses, worries about being unable to afford higher rates are growing.”
Hale said managing an increase of 5.65% when moving from one two-year fixed rate mortgage to another or seeing an even larger jump if moving to a standard variable rate is “understandably frightening.” Hale urged homeowners to take time to consider their options ahead of time rather than waiting until they are forced to remortgage.
“No one option is right for everyone but by speaking to an adviser who specialises in later life lending products, you can gain an understanding of your different choices. You may find that a retirement interest only mortgage is right for you or perhaps a modern equity release plan which offers more flexibility around repayments,” Hale added.
