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About 700,000 British households face a jump in mortgage costs when their fixed-rate deals expire in 2025, as turmoil in the UK's financial markets in recent weeks threatens to push up borrowing costs.
Mortgage rates were expected to fall this year, easing the pain for homeowners. But the recent selling in UK government debt marketsInflation, driven by concerns about persistent inflation and high public borrowing, could keep borrowing costs high for longer.
The shift has also led to a sharp rise in swap rates, which lenders closely track to price their mortgages.
Two-year sterling interest rate swaps, which forecast the average interest rate over 24 months, rose from just under 4 per cent in mid-September to more than 4.5 per cent.
The mortgage shock awaiting families this year comes on top of the 2.4 million households forced to remortgage at higher rates in 2023 and 2024, according to analysis by property group Savills.
Lucien Cook, head of housing research at Savills, said the “pressure on household finances” due to rising mortgage costs “has the effect of continuing to suck money out of the economy”. economy“.
The vast majority of UK homeowners lock in their mortgage interest rate for two or five years, meaning the shock of the spike in borrowing costs that began in 2022 – which escalated after Liz Truss's disastrous 'mini-budget' – has hit families over several years. .
Rising mortgage payments have been a major contributor to the cost of living crisis. Higher interest rates will add £1.27bn to the annual housing costs of landlords remortgaging in 2025, according to Savills Projects.
These estimates are based on projections that predict that remortgage rates will fall to 4.0 percent by the end of the year.
But investors have become increasingly concerned about government debt, persistent inflation and the outlook for the UK economy, which over the past few weeks has led to higher government borrowing costs and swap rates.
Simon Gammon, managing partner at Knight Frank Finance, said: “Swaps have moved materially, so pricing pressure is already there for all lenders. . . . If the current trend continues with interest rates remaining high, we are likely to see mortgage rates rise across the board. Domains.
The Bank of England, which last year began cutting its benchmark interest rate from a 16-year high, warned that “the full impact of higher interest rates has not yet been transmitted to all mortgage lenders.”
The central bank said in November that a typical landlord who reaches the end of the fixed rate in the next two years will see their monthly payments rise by 22 per cent, or £146.
The Bank of England added that the proportion of households defaulting on mortgage payments or burdened by them remains low by historical standards.
The need to absorb higher costs has led many homeowners to postpone moving, with fewer people able to replace a more expensive home.
“Only when this is fully washed away… will you see people again thinking about moving,” Savills' Cook said.
However, there should be some good news for borrowers remortgaging two-year fixed deals. They have stabilized at a level close to the recent peak of borrowing costs and will see their monthly costs fall significantly.
Of the just over 1 million fixed-rate deals ending in 2025, about 340,000 will be two-year fixes as borrowers typically save money by remortgaging. The rest are longer fixes where remortgaging is more expensive, Savills said.
Additional reporting by Ian Smith
