More than 350,000 households who locked in to low-interest fixed-rate mortgages five years ago are expected to see their costs jump this winter as they reach the end of their deals.
Analysis by the bill management app Nous found almost half of mortgages taken out between October 2020 – as the housing market revived after an initial Covid shock – and February 2023 were five-year fixed-rate deals.
The length of the deals meant that those consumers avoided rolling off loans when mortgage rates peaked two years ago, but they still face a payment shock as they shop around for a new deal.
Nous said the average rate on a five-year fixed-rate deal was 1.88% in 2020 and 5% now, meaning those on a typical £200,000 mortgage could see payments jump by £333 a month to £1,169 – an increase of £3,996 a year.
Those with larger loans face bigger jumps: on a £500,000 home loan, the new rate would mean paying an extra £833 a month.
Lenders have recently nudged up interest rates after months of cuts.
Greg Marsh, the chief executive of Nous, said: “Hundreds of thousands of homeowners are in for an unpleasant shock this winter. The era of ultra-cheap mortgages is over. For these households, it’s leaving them thousands of pounds a year worse off.”
Marsh said the increases were coming at time when other household bills were going up. Water and council tax bills have increased this year, and in October energy prices are set to go up.
Last week, big lenders including Nationwide building society and Halifax increased the cost of some of their deals, and on Monday HSBC announced it would be doing the same.
The increases have typically been small – Nationwide added 0.2 percentage points to some of its fixed rates – but they will be unwelcome for those currently shopping around for a new deal.
Hina Bhudia, a partner at mortgage broker Knight Frank Finance, said that since the Bank of England cut the base rate to 4% in August, economic data has been released that makes further cuts look less certain.
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While there had been forecasts of a November cut, the Bank is now not expected to reduce rates until next spring.
She said: “That’s feeding through into mortgage pricing: what started as isolated increases from a handful of lenders has, over the past week, become a wider round of rate hikes.
“These changes may only be a few tenths of a percentage point at a time, but they still translate into noticeably higher monthly payments for borrowers. Confidence was already fragile due to the looming budget, and this won’t help.”
Bhudia said the increases could be short-lived, and anyone applying for a mortgage could watch rates and switch deals if prices fall before they complete on it.
