Mortgage crisis: Thousands hit with £3k increase this month, despite expected interest rate cuts
Mortgage crisis: Thousands hit with £3k increase this month, despite expected interest rate cuts
A £3,000 financial shock looms for thousands of UK homeowners this month, leaving many grappling with a dramatic rise in their mortgage payments.
As five-year fixed deals come to an end, tens of thousands face the harsh reality of much higher rates, even as hopes for interest rate cuts from the Bank of England grow.
For around 50,000 homeowners who secured low-rate mortgages in early 2020, this shift could mean a nearly £300 increase in monthly payments—pushing their costs up by over £3,000 annually this month.
Homeowners coming off five-year fixed deals will see their monthly payments rise from £836.07 to £1,111.66 on a typical £200,000 mortgage, according to analysis by household money-saving tool Nous.co.
This dramatic increase reflects the jump from the average 2020 rate of 1.88 per cent to current rates of around 4.5 per cent.
The February “mortgage timebomb” comes as the Bank of England’s Monetary Policy Committee prepares to meet on February 6, where interest rates are expected to be cut.
However, experts warn this relief will come too late for those whose fixed deals end this month.
As five-year fixed deals come to an end, tens of thousands face the harsh reality of much higher rates
GETTY/BoE
Greg Marsh household finance expert and CEO of money-saving tool Nous said: “Falling interest rates are welcome news for mortgage holders. But the UK’s mortgage timebomb hasn’t fully exploded.
“Millions of households are still on mortgage rates below three per cent and will see their monthly payments soar when they refinance over the next three years.
“In February alone, 50,000 households are coming off five-year mortgages and facing painfully high rates for the first time.
“A typical household will see their payments rise by nearly £300 a month. After years of soaring prices, many will struggle to manage.”
The impact is already causing concern among mortgage holders, with recent research showing 43 per cent have no plan to cover payment increases when their fixed deals expire.
Nearly half of borrowers would face financial difficulty with an extra £300 in monthly payments, according to a survey by Censuswide for April Mortgages. About 29 per cent said they would struggle to manage even a £200 monthly increase.
The mortgage crisis is set to affect far more households throughout 2025, with industry body UK Finance revealing 1.8 million mortgages will be up for renewal this year.
Of these, 744,673 are low-rate five-year fixed deals from 2020, according to estate agency Hamptons. The collective impact amounts to an extra £176.6million in monthly payments across the country.
However, some relief may come for those who fixed deals after the mini-budget, with 462,585 borrowers potentially saving £20 monthly when refinancing this year.
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Jonny Stevens, who runs a communications business in Bath, is feeling the pressure as his mortgage deal comes to an end.
His current 1.83 per cent five-year fixed rate on his four-bedroom home is about to expire, and his bank, Santander, has offered him a new deal at 4.17 per cent.
This would push his monthly payments up from £2,200 to £2,900 on his £450,000 mortgage—an extra £700 a month, or £8,400 a year.
Stevens, 54, also has to cover the 20 per cent increase in school fees for his two children, aged 13 and 7, after VAT was imposed on private schools from January 1. He hasn’t fully calculated the extra cost but it will come to “thousands more” a year.
The Bank of England are predicted to cut interest rates this week
GETTY/BoE
Stevens is looking at ways to cope, including switching to interest-only payments and tapping into his retirement savings.
He said: “The idea behind interest-only would be that it still allows us to make overpayments. We wouldn’t just sit on an interest-only for five years, we’d try to overpay where we can.
“I’m going to cut back on things. I’m shopping around to get the best deal for everything, and also trying to earn more money. I can’t transfer my kids to state schools because they’re all full.
“I might not get much sympathy but I’m not some rich, privileged guy. I’ve worked hard all my life.”
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