Mortgage rate rises mean half of borrowers face potential hike to 5%

Half of UK homeowners are currently on a fixed rate mortgage, which will expire in two years. This poses a risk of a global mortgage shock.

According to Shawbrook Bank’s mortgage arm, The Mortgage Lender (55%) of those who are ending their deals in the next two years are on two-year fixed rates deals while 39% are on five-year fixed rates. 

These borrowers may be in for a surprise as the interest rates have risen dramatically over the past year, significantly raising the cost of a mortgage.

Mortgage rates hit historic lows in summer 2021 as multiple high street lenders offered loans for below 1 per cent interest – and those who took these cheap rates on two-year fixes will be coming up for remortgage in summer 2023. 

According to current estimates, the average mortgage rate at that time will be up to 5%. This could potentially add hundreds of pounds per year to the mortgage cost. 

Rate increases: Borrowers who have taken out low-interest mortgages in the last two years could be facing a mortgage shock when they try to get a new deal

HSBC offered a fixed rate of 0.99 percent for two years in July 2013 to those who had a 40% equity or deposit. Santander, TSB and Nationwide were offering similar deals. However, the lowest rate offered by Nationwide was 0.87 per cent. 

Since then, mortgage rates have risen rapidly. Moneyfacts data showed that the average two year fixed rate for all deposit sizes was 2.52 percent as of August 20, 2022.

The rate of interest rose to an average of over 6 per cent in October 2012, following the disastrous mini-Budget. However, they are slowly falling now and will settle at around 4 to 5% next year. 

Someone with a £200,000 mortgage on a 25-year term would pay £754 on a 1 per cent interest rate – but if that rate rose to 5 per cent their monthly payment would rocket by £415 to £1,169. Over a two-year fixed period, it would cost them almost £10,000 more.

The Mortgage Lender’s research has shown that 25% of consumers are anticipating an increase in mortgage costs.

Among those that expect their mortgage rates to rise in the next two years, the average they expect their monthly mortgage payments to rise by comes to £441.

The cost-of living crisis is causing the rise in mortgage prices. Household finances are being squeezed on all sides, as food and bills have risen at an alarming rate.

Mortgages Rates Are Slowly Falling After The Highs Seen In October After The Mini-Budget

After the October mini-Budget highs, mortgage rates are slowly falling.

As such, more than a quarter of mortgage holders say they wouldn’t be able to afford their monthly repayments if they increased by £100 a month, according to research from Citizens Advice.

Nearly half (45 per cent) said they would be unable to make their payments if they rose by £250 a month.

Steve Griffiths, Head of Sales at The Mortgage Lender stated that mortgage borrowers would continue to pay close attention to the Bank of England’s Base Rate Decisions over the next months in order to determine how they might affect their future borrowing costs. 

A mortgage is one the largest financial commitments that an individual can make. It can be difficult to decide whether to get a mortgage now or later.

“Fortunately, many borrowers are able to avoid potential higher costs by talking to their mortgage broker to find the best deal for them.

‘Borrowers may review their contracts up to six months prior to them ending, so it’s a good idea now to evaluate what options are available.

For those who are experiencing a mortgage shock, switching from a fixed rate to a tracker might be a better option.

Tracker mortgages are based on the Bank of England base rate with a fixed percentage added. You might see a mortgage advertised with a Base +0.75 percent for two years.

Current tracker rates average 4.9% for two years, while the fixed rate average is 6.09% for the same period.

The Bank of England base interest rate is expected to rise into the early part of next year. However, it currently stands at 3% after successive increases since December 2013. Trackers still have a ways to go before fixed rates catch up.

However, even with the cost savings, the final decision to switch to variable rates comes down to the borrower’s risk appetite. 

Those Remortgaging Or Moving Home Could Face Higher Rates Of Up To 5% On Average

Higher rates could apply to those who remortgage or move home, with an average of 5% 

Matt Coulson, mortgage advisor at Heron financial, says that while there might be some savings in the near term, the situation remains volatile. The tracker rate could rise quickly, and fixed rates may be higher when you jump off the tracker.

It’s your own mental health. Will you wake up every night thinking, “If that rate goes up, I’m in serious trouble.” It’s worth considering if the answer is yes, even though it may cost a little more.

If a mortgage holder needs to switch to a new deal, they may have less options. 

According to Octane Capital’s new data, the number of mortgage deals currently available is 41% less than it was last year.

There are approximately 5,398 different mortgage options available at the moment, with home buyers (2.631) and home movers (2.569) having slightly more choices than those looking for a remortgage (2.302).

The analysis shows that there are still 18% of products available, compared to the time in which they were available two years ago during the peak of the pandemic.

First-time buyers continue to benefit from a 45% increase in product selection compared with 2020. This includes a 38% increase for home movers and 20% for remortgagors.

What to do if you have a mortgage 

If a borrower needs a mortgage to pay off their current fixed rate agreement or to purchase a home, they are urged to get involved but not panic..

There are still banks and building societies that lend and mortgages are available with accepted applications. 

However, rates are constantly changing and it is not possible to guarantee that deals will be sustained and not replaced by mortgages with higher rates. 

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What happens if I have to remortgage my home? 

Borrowers are advised to compare rates and to speak with a mortgage broker. They should also be ready to take action to secure a rate. 

Anybody with a fixed rate contract that will end in the next six to nine month should consider how much it would be to remortgage. 

There are usually no fees added to mortgage loans. They are charged only when the loan is taken. This allows borrowers to secure a rate without paying high arrangement fees.

What about if I buy a home? 

People who have home purchases made should seek rates as soon possible to ensure they are able to know what their monthly payments will look like. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to Compare Mortgage Costs 

Talking to a broker can help you compare mortgage costs and negotiate the best deal.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Rates can change rapidly so it is important to compare rates before you apply for a mortgage. Then, speak with a broker immediately to get the best mortgage deal.

> Check the best fixed rate mortgages you could apply for 

Affiliate links may appear in some of the links. We may receive a small commission if you click on these links. This helps us to fund This Is Money and keeps it free of charge. We do not promote products through articles. Our editorial independence is not affected by any commercial relationships.

Show More


The author of what' is dedicated to keeping you up-to-date on the latest news and information.

Related Articles

Back to top button