1.4m households could face rate rises when renewing fixed mortgages in 2023

More than 1.4 million households are facing the prospect of interest rate rises when they renew their fixed-rate mortgages this year, according to the Office for National Statistics (ONS).

The majority of fixed-rate mortgages in the UK (57%) which are coming up for renewal in 2023 were fixed at interest rates below 2%, it said.

Deals that are due to mature in 2024 will include two-year fixed rate deals from 2022 and five-year fixes from 2019, when mortgage rates were generally higher than 2%, the report added.

The ONS said that, based on Bank of England data, a peak in fixed deals ending is expected between April and June this year.

A string of Bank of England base rate hikes have taken place over the past year, but borrowers on fixed-rate mortgages have been cushioned from their immediate impact. Some may get a shock when they come to renew.

Mortgage rates spiked last autumn in the aftermath of the mini-budget, but have since started to settle.

The “effective” – or average – interest rate on outstanding mortgages with a fixed rate was 2.08% in November 2022, the report said.

This contrasted with an average interest rate of 4.41% on variable-rate mortgages and average interest rates being offered on new fixed-rate mortgages at about 6%.

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 repayment on the same mortgage would increase by £220, from £424 to £644, the ONS said.

Assuming the same increase on a £300,000 mortgage, monthly repayments would rise by £661, from £1,272 to £1,933, it said.

The potential increases borrowers will face will depend on individual circumstances and people may want to speak to their lender or a broker for more clarity about their position.

The ONS pointed to the Bank of England’s financial stability report of December 2022, suggesting homeowners on fixed rates set to expire by the end of 2023 are facing monthly repayment increases of about £250 on refinancing to a new fixed deal.

Private renters are also facing an increase in their housing costs, with rental price growth at its highest rate in the UK since records began in 2016, the ONS said.

Around a quarter (26%) of renters surveyed between December 7 and 18, 2022, reported their rent payments had gone up in the past six months, according to data from the Opinions and Lifestyle Survey (OPN).

Private rental prices paid by tenants in the UK rose by 4% in the 12 months to November, 2022, up from 3.8% in the 12 months to October, 2022, according to ONS data.

In the year to March 2021, renters in the UK spent a total of £106.50 per week on rent once housing benefit, rebates and other allowances received were accounted for.

This equates to 24% of their average weekly expenditure.

Meanwhile, mortgage holders spent a total of £140.80 per week on mortgage repayments, equal to 16% of their average weekly spending.

Amid rising living costs, both mortgage holders and renters have found their payments increasingly difficult to service, according to people asked in the latest OPN survey.

The proportion of people finding it somewhat difficult or very difficult to afford their rent or mortgage payments edged up towards the end of last year, from 27% in September to 31% in December.

Additionally, 45% of adults with mortgages reported being very or somewhat worried about the changes in mortgage interest rates in December.

Mortgage pricing is a decision for individual firms and it is impacted by various factors, including a borrower’s credit history.

Some borrowers may find when they come to renew that they have paid down enough of their debt to be in a lower loan-to-value (LTV) bracket than they were previously, which could have a positive impact on the deals available to them.

A spokesman for trade association UK Finance said: “Lenders stand ready to help customers who might be struggling with their mortgage payments, with a range of tailored support available.

“Anyone who is concerned about their finances should contact their lender as soon as possible to discuss the options available to help.”

Gary Smith, financial planning director at wealth manager Evelyn Partners, said: “Those who have deals expiring this year face a difficult choice as to whether to fix again or risk a variable-rate deal.

“The former could mean locking in at a relatively high interest rate in order to achieve certainty. The latter could mean rising payments in the short-term but possibly lower payments in the medium-term as benchmark interest rates plateau or even start to come down.”

He added: “The danger is that those who are already paying a substantial proportion of their net income in mortgage costs will be stretched by the increased payments on their new deal, and therefore reduce monthly saving – whether that is cash, investment Isa or pension – or even eat into their savings.”

Mr Smith said some borrowers may consider extending their mortgage term, which could potentially mean paying off their home loan into their retirement.

For some homeowners, it could mean putting off their retirement to a later date, he added.