22 / 08 / 2022
Homeowners are paying hefty fees to exit fixed mortgage deals early before interest rates rise.
It may sound counter-intuitive to try to cut bills by spending more. But it could be prudent if interest rates keep climbing as expected.
Mortgage costs have increased rapidly, bringing the era of ultra-cheap borrowing to an end.
Average five-year fixed rates have already hit a seven-year high of 3.37 per cent, according to data analysts Moneyfacts. This could prove a major blow for borrowers when they come to remortgage.
The Bank of England base rate has risen to 1.25 per cent, but analysts believe it could more than double over the coming 12 months to top 3 per cent.
This means borrowers are rushing to secure cheap fixed rates before they vanish — even if it means paying steep penalties to leave deals.
Yorkshire Building Society reported an 88 per cent rise in the value of exit fees paid so far this year, compared to the same period in 2020.
Mortgage advisers have also seen more borrowers swallowing costly charges. Dean Esnard, director at Magni Finance, reports that customers have paid penalties of more than £6,000 to bag a new five-year deal.
He says: ‘People are worried — most think rates will keep rising. Paying an exit fee is hedging that rates will be higher when their current deal ends.’
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