Since Liz Truss’s brief period in office in 2022 and the infamous so-called mini-budget delivered by her short-lived chancellor, Kwasi Kwarteng, many homeowners have seen their mortgage costs rise sharply.
The mini-budget, which set out £45bn of unfunded tax cuts, triggered turmoil in UK financial markets and pushed up the cost of government borrowing. That increase fed directly through into mortgage rates, with borrowing costs rising steeply in the months that followed. By July 2023, mortgage rates had reached their highest level since the 2008 financial crisis.
The impact was compounded by wider global pressures. Interest rates were already on an upward trajectory as central banks, including the Bank of England, moved to tackle inflation, which had been intensified by energy price shocks following Russia’s full-scale invasion of Ukraine.
However, homeowners who secured longer five-year ultra-low mortgage deals have remained largely shielded from the turmoil in the home financing sector. For many, though, that period of relative safety is now coming to an end.
With nearly one million mortgages on ultra-low rates reaching the end of their term this year, borrowers are likely to face higher rates, which could push their annual repayments up by an average of £2,124.
Data obtained via a Freedom of Information request to the Financial Conduct Authority shows that 971,105 five-year fixed-rate regulated mortgages were opened in 2021. Excluding any that may have been repaid early, up to the same number of mortgages are predicted to roll over onto new rates in 2026.
In 2021, sub-2% five-year rates were widely available, with the Bank of England base rate as low as 0.10% until December of that year, when it edged up to 0.25%. By contrast, the current base rate stands at 3.75%, despite a recent drop in December 2025.
As a result, most households moving off five-year fixed rates this year will see their monthly mortgage repayments rise. Analysis by Compare the Market of Bank of England data shows that the average five-year fixed interest rate on a 75% loan-to-value mortgage in 2021 was 1.58%. On an average UK house price of £249,309 in January 2021, with a 25% deposit, this would have equated to annual repayments of £9,060, or £755 per month.
Today, the average of the lowest remortgage five-year fixed rates across the ten largest mortgage lenders was 3.89% in January 2026, according to data from L&C Mortgages. Based on the calculations above, a borrower would still owe £155,246 after the first five years. On a rate of 3.89%, this would take monthly repayments from £755 to £932 – an increase of £177. Annually, that’s a jump of £2,124 – from £9,060 to £11,184.
If a borrower were to let their five-year mortgage roll onto a standard variable rate, then this price increase could be even higher. Based on Lloyds Bank’s Homeowner Variable Rate (HVR) of 7.24%, a homeowner re-fixing with £155,246 still to pay would see their monthly repayments jump from £755 to £1,226, or from £9,060 to £14,712.
That is an even more substantial jump, adding £471 more each month, or £5,652 annually.
Borrowers with five-year mortgage rates up for renewal this year should consider shopping around and comparing deals, as this will help to keep repayment increases to a minimum.
Sajni Shah, mortgage expert at Compare the Market, commented: “With nearly one million families due to come off ultra-low five-year fixed terms, many will be shocked to see their repayments jump by around £2,124 a year on average. Despite the recent base rate reduction, certain households will be on thin ice as they struggle with the ongoing cost of living pressures on their budget.”
David Hollingworth, associate director at L&C Mortgages, added: “Homeowners that locked in a super low rate five years ago have been sheltered from the ups and downs in interest rates in recent years. Although a hike in payments is inevitable once the fix ends, the good news is that mortgage rates have improved substantially recently and are much lower than at the peak.”
Read the orginal article: https://propertyindustryeye.com/homeownership-costs-poised-to-rise-sharply/?utm_source=rss&utm_medium=rss&utm_campaign=homeownership-costs-poised-to-rise-sharply
