If you’re due to remortgage soon, you might understandably wonder if you’ll face significantly higher mortgage bills when you move on to a new deal.
Compared to the historically low rates offered a few years ago, borrowing remains relatively expensive – but the market is much calmer after the periods of volatility seen over the past two years.
One positive factor is that interest rates appear to have finally peaked, as the Bank of England opted to keep the bank rate at 5.25% following its latest Monetary Policy Committee meeting, where it has been held since August. It will be held at least until June 20, when the next tariff decision will be announced.
However, given that Britain found itself in a technical recession at the end of last year – one which experts say could already be over – it was thought that the Bank Rate could take longer to come down than expected. As a result, some lenders have increased the rates offered on their mortgage deals – but usually only by small amounts.
The average two-year fixed-rate mortgage is currently 5.93%, while five-year deals average 5.51%, according to data analyst Moneyfacts.
The likelihood of a future Bank Rate cut depends on wage growth and the Consumer Price Index (CPI) measure of inflation. The CPI was measured at 3.2% in March, up from 3.4% in February – with experts predicting it could reach its 2% target by April.
The Bank of England has increased its Bank Rate several times since December 2021 in a bid to bring inflation back to its 2% target. It has been stuck at 5.25% since August 2023.
Use our calculator to determine the impact of recent shocks to the mortgage market on your monthly payments.
First time buyer
A first-time buyer purchased their home with a 10% deposit and a 2.1% mortgage rate over two years in 2022. Their outstanding mortgage is £250,000.
The current new two-year average fixed mortgage rate of 5.93% would see their monthly payments increase by £528, to £1,600 in total payments per month.
Even if they earned £45,000 – a high salary compared to the national average – more than half of their take-home pay would be spent on mortgage repayments, compared to just over a third before renewal.
Half-way
Someone renews the mortgage on their semi-detached house that they bought ten years ago. They have 15 years left on their mortgage and £100,000 to repay.
Their current rate, 1.59%, is coming to an end; using the current average, they would see their monthly payments rise from £625 on their current rate to £840.
Towards the end
This person bought their detached house over twenty years ago and has just two years of mortgage left, or £7,000 to pay.
They have had a mortgage rate of 1.59% for two years, paying £297 a month.
Because they bought their house when prices were cheap and their remaining mortgage is low, their payments will be little affected by the increase, from £297 to £310 a month if they remortgage at the average current market.
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