The 2023 remortgage lottery – who’s most at risk and what you can do

Millions are facing a remortgage lottery.

The losers are those whose fixed deals run out by the end of 2023. They’re set to take a horrible hit, typically equivalent to an 80% hike in their energy bills. Our research on at risk mortgage holders, shows two million households will be at risk of falling into arrears by the end of the year.

To add to that, because the cost-of-living crisis has taken a massive toll on our financial resilience, almost a half of those households will be wrestling with even worse problems.

Remortgaging in 2023 will on average swallow an extra 3.1% of your income after tax. It’s horrible enough to face on its own, but it’s particularly galling when you know that if your mortgage deal had ended a bit later, in 2024, you’d have been much better off. That’s because rates are expected to fall slowly during 2023, and then drop away faster in 2024.

This article isn't personal advice. If you're not sure if a certain action is right for you, seek advice.

The impact of higher mortgages

These higher mortgage payments will mean more than a quarter of people with mortgage debts will be at risk of default by the end of 2023. That’s two million households, which is up 425,000 compared to second quarter of 2022.

Our savings and resilience tool measures this by looking at those households who will be spending more than 25% of their household income after tax on their mortgage.

Our tool helps give us a look at people’s overall financial resilience – and the findings are even more alarming.

We class 650,000 at ‘high risk’. But they’re not only facing a dangerous hike in their mortgage payments. Because they have less than the minimum recommended emergency cash savings (three months’ worth of essential expenses) to fall back on, they’re already facing lower resilience.

How to save a penny for a rainy day

Another 347,000 are at ‘critical risk’. That’s because on top of the mortgage hit and lower savings resilience, they’re spending more cash every month than they have coming in. Their resilience has taken such a hit over the past year that they face an enormous struggle to cope with this extra pressure.

Who’s most at risk?

Hard-pressed singletons will be facing these horrendous hikes alone. So, it’s hardly a surprise they’re three times more likely to be at high risk and more than five times as likely to be critical risk than couples.

Working patterns also affect the dangers of remortgaging, because households where the main earner is self-employed are more than twice as likely to be at high or critical risk. This is particularly worrying given the fact their incomes tend to be more variable too.

Londoners are also more vulnerable. Nearly four in ten will be classed as at risk by the end of this year– largely because of sky-high property prices.

Younger owners have also been forced to stretch themselves to get onto the property ladder. So despite making up just under half of the market, Millennials and Gen Z will make up a little under two thirds (61%) of the increase in those at risk.

But baby boomers who still have a mortgage also face huge challenges.

This is a relatively small group, and likely includes those rebuilding after divorce, or who hit financial problems along the way that left them with a mortgage later in life. They might also have scaled back their work commitments and be managing on a lower income. As a result, they’re one and a half times as likely to be at high risk and twice as likely to be at critical risk.

What are your options?

If you’re coming up for remortgaging in 2023, you have some difficult decisions to make. For those whose fixed rate deal is coming to an end this year, this raises the question of the ‘right’ thing to do.

Some will want to wait and see whether rates fall any further. Our research forecasts that mortgage rates should fall during 2023, and then drop faster next year. It means some people might want to switch into a variable rate .

Whether and when to take out a fixed rate in future is worth it will depend on the size of the mortgage, the rate you can get, any fees you paid for the mortgage up front, and any early repayment charges.

However, while rates could come down at some point this year, there’ll also be bumps along the way. Wait-and-see borrowers will need to be well aware of these before they opt for a variable rate.

There’ll be plenty of people who moved to a variable rate over the past few months, based on forecasts that rates would peak at 4.5% and then start falling back. They might have been expecting a 0.25 percentage point rise in March, possibly another one in the spring, and then falls later in the year.

However, expectations have changed a little over time. The market has started pricing in slightly higher rates, so some of the most competitive fixed rate deals have been pulled.

It appears that strong labour market figures and robust retail sales are raising fears that inflation will hang around for longer. If we get another Bank of England rate rise later in the spring, that will mean variable rates go higher than some people were expecting.

Then of course is the question of how long it will be before rates start falling back, and how low they will go. Unfortunately, there can never be any guarantees over either of these things and you have to take forecasts with a pinch of salt.

Given this uncertainty, some borrowers might well decide that the value of certainty over their outgoings makes fixing for 4%-5% a relatively attractive prospect. In which case, it could be worth locking in a deal while they remain on the market.

These ups and downs mean that whatever approach you take to deal with the remortgaging lottery of 2023, you need some wiggle room. That way you can cope financially if things don’t go entirely as you expect.

For an awful lot of people, this means going back to the drawing board with their household budget. Working hard to squeeze every extra penny out of their spending will be important in order to keep on track while mortgage payments are higher.

Explore our savings and resilience tool or use our 5 to Thrive articles to see what you can do to become more financially resilient.

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