Over 1.4 million households facing mortgage hike

Mortgage  Attractive street of residential terraced mansion buildings in Kensington, West London
Mortgage payers face squeeze in 2023 after UK interest rate rises. Photo: PA/Alamy

More than 1.4 million households in the UK are facing the prospect of interest rate rises when they renew their fixed rate mortgages in 2023, the Office for National Statistics (ONS) warns.

The interest rate for a typical, new two-year fixed-rate home loan peaked at 6.65% in October, but has now dropped to 5.78%. Five-year deals, which had also topped 6%, now typically have a rate of 5.61%, according to figures from Moneyfacts.

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The ONS estimates that in the first three months of the year alone, 353,000 fixed rate mortgages will have to be renewed.

Those renewing their fixed rate or on variable rates are in for a financial hit.

Almost six in every 10 fixed rate mortgages in the UK coming up for renewal this year had an interest rate under 2%.

Should the interest rate on a £100,000 mortgage increase from 2% to 6%, assuming a 25-year capital and repayment mortgage, then the monthly mortgage repayment on the same mortgage would increase by £220, to £644 from £424.

However, according to the ONS, assuming the same increase on a £300,000 mortgage, monthly repayments would rise by £661, to £1,933 from £1,272.

The Bank of England has already warned that home owners on fixed rates that expire by the end of this year are facing monthly repayment increases of around £250.

The central bank has increased interest rates nine times in little more than a year from 0.1% to 3.5%, increasing the cost of borrowing to businesses and households and forcing them to spend less.

The ONS figures also show that around four in 10 of those with a mortgage are worried about changes in interest rates on their mortgage.

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Karen Noye, mortgage expert at Quilter, said: “Given the high interest rates – many of which still sit around 6% - those looking to refix may well be more tempted to opt for a tracker mortgage rather than fix at the current levels, particularly after Rishi Sunak announced inflation is likely to half this year, which could mean that the Bank of England will not need to continue hiking interest rates.

“Lenders are already tweaking their offerings to reflect this. For example, just last week Halifax relaunched a handful of tracker products aimed at first-time buyers and those looking to remortgage. Its two-year tracker rates for homebuyers range between 4.09 and 4.59 per cent, compared with fixed rates of 5.12 to 5.82 per cent for the same term.

“While borrowers may feel a tracker rate is the better option, it is important that they are aware that tracker rates will likely be impacted by any further Bank of England rate rises and could therefore surpass the fixed rates currently on offer. Ultimately, it is important to seek professional mortgage advice where possible to help you assess what the best option is for your personal circumstances.”

Read more: UK house prices fall more than £4,100 in one month as mortgage costs rise

Despite slight increases in the difficulty in paying housing costs, 1% of homeowners reported to be behind on mortgage payments and 7% of tenants reported to be behind on rent payments in the period 7 to 18 December 2022.

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Housing costs are going through the roof and are set to become even more expensive for many Britons in the coming months.

“Housing is the biggest expense for most households, so even a modest percentage increase in these costs could translate to a significant amount in pounds and pence terms.

“The climb in interest rates over the past year has marked the end of the golden era of cheap mortgages. Home loans have hit levels not seen since the financial crisis and the spectre of further hikes in the base rate is set to pile more misery on mortgage holders and wannabe homeowners alike at time when household budgets are reeling from the cost-of-living squeeze on finances."

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