Millions of homeowners are set to face a painful remortgaging experience in 2024, with many potentially struggling to cope with significantly higher rates.
According to Sarah Coles, head of personal finance at Hargreaves Lansdown, around 1.5 million people will be remortgaging in the year ahead. This comes at a time when interest rates have risen sharply, leaving many homeowners with significantly less financial wiggle room.
The firm's Savings and Resilience Barometer for July 2024 revealed a concerning trend. One in five homeowners who have remortgaged since late 2022 onto a higher rate have reported "poor" or "very poor" financial resilience. This is in stark contrast to the 12% of those who haven't yet refinanced their mortgages.
The shift from deals under 3% to rates nearing 6% throughout June and July has significantly impacted household finances. This means that over the next 12 months, many will be juggling considerably more debt.
Those who have already remortgaged have experienced a dramatic blow to their resilience, with an average of just £315 left at the end of the month. This compares to £401 for those who haven't remortgaged and £410 for mortgage holders overall.
However, a glimmer of hope exists for those who haven't yet remortgaged. While they will likely face higher rates than those who remortgaged in 2022, these rates are expected to be lower than the peak seen earlier this year.
"It means the jump in rates is going to be painful, but they donât have quite the same gap to clear as those who came before them," explains Coles.
Renters: A Growing Crisis
While the remortgaging landscape may be slowly improving, the situation for renters remains dire. Despite seeing their financial resilience rise in line with the national average since the pandemic, renters have always had lower resilience compared to those with mortgages.
The proportion of renters with arrears has increased by 3.5%, and the percentage worried about their debts has risen by 10 points. This situation is particularly acute for renters with children who are in the lowest fifth of earners, with almost all (99.6%) experiencing poor or very poor resilience.
"While life may get easier for those with mortgages as rates ease, the same canât be said for renters," states Coles. "Theyâre still facing rising rents, as tenant numbers keep increasing and landlords continue to sell up. This means people need to manage their finances carefully in order to stay on an even keel."
The combination of rising mortgage rates and mounting rental costs poses a significant challenge for many households. As the cost of living continues to rise, careful financial planning and management will be crucial for navigating these difficult times.