Mortgage Repayments Surge as Fixed Rates Soar

For homeowners who secured ultra-low fixed-rate mortgages between 2020 and 2021, the cost of homeownership is poised to escalate significantly. In 2025, an estimated 1.8 million mortgage deals will expire, a 50% increase from 2021. As these homeowners transition to new deals, they face substantially higher borrowing costs.

External remortgaging is projected to soar by 30% to £76 billion, as borrowers seek alternative lenders to mitigate the financial burden of refinancing. While a significant number of expiring deals are two-year loans taken out in 2023 amid the post-mini-Budget mortgage rate spike, many homeowners secured long-term fixed-rate deals when interest rates were at historic lows in 2020.

With house prices surging due to the pandemic-driven flight for space, homeowners borrowed hefty sums at favorable interest rates. As these deals expire, monthly payments are set to skyrocket. Despite recent interest rate cuts by the Bank of England, mortgage rates remain elevated compared to a year ago.

The average two-year fixed rate for residential mortgages stands at 5.5%, while the average five-year rate is 5.3%. Lenders anticipate sustained high interest rates, deterring significant reductions in fixed-term mortgage rates.

UK Finance forecasts that 99,000 mortgage customers will fall into arrears in 2025, a concerning 7% increase from 2024. This situation could further exacerbate the housing crisis, particularly as the government seeks to stimulate economic growth.

Personal Impact

Miles Turner:

A 30-year-old administrator, Miles Turner faces an imminent doubling of his monthly mortgage payments. His current interest rate of 1.3%, secured in 2020, is projected to rise to 4.5% in August when his fixed-rate deal expires. This increase threatens his financial stability, given his modest pay increase of 7% over the same period.

Megan:

A 52-year-old freelance worker, Megan experienced a £650 monthly mortgage payment increase when her fixed deal ended in 2024. The timing coincided with a reduction in her work hours, exacerbating the financial strain. To mitigate the risk of default, she rented out a spare room to a lodger.

Danielle Brooks:

A 34-year-old landlord, Danielle Brooks must navigat increasing mortgage rates on three of her five rental properties. The current rates of 2.4% are expected to surge to 4.9%, forcing her to raise rent by 15% for three tenants. This decision weighs on her tenants, who face financial challenges in securing mortgages amid rising costs.

Impact on Buy-to-Let Market

Rising interest rates disproportionately affect buy-to-let borrowers. Many landlords have interest-only mortgages, where doubled rates result in double payments. Some landlords may be compelled to pass on these costs to tenants, potentially leading to evictions. Others may consider selling their properties as profits dwindle or turn into losses.