Homeowners facing higher mortgage costs are seeing repayments climb by roughly £170 to £400 a month as average five-year fixes hit 6%. The 750,000 borrowers rolling off sub-3% deals this year feel it worst, with oil-driven inflation and rising swap rates behind the squeeze.
The pain does not spread evenly. Leave a two-year fix and the change may be modest. Leave a five-year deal signed in 2021, and you jump from near 1% to close to 5%. That leap is the payment shock.
- The average five-year fix has reached 6%, its highest since September 2023.
- The average two-year fix stands at 5.98%, the highest since the end of 2023.
- Only nine fixed-rate products are priced below 5%, against 1,494 a month earlier.
- The bank rate has been held at 3.75% all year, with a rise expected in November.
Why Rates are Rising While the Bank Rate Stands Still
Threadneedle Street has not moved its base rate this year. Lenders have moved anyway. Analysis published by Morningstar points squarely at oil, which has pushed back above $100 a barrel after supply disruption. ING economist James Smith says the rise in mortgage rates is still being driven “almost exclusively” by oil prices.
The chain is simple. Closure of the Strait of Hormuz, normally responsible for around a fifth of global energy supplies, lifted oil and gas costs. That feeds inflation, which is expected to reach 4% by year-end after prices rose 3.1% in the year to August. Markets price in tighter policy, bond yields rise, and swap rates follow. Swaps are what lenders use to price fixed deals.
“That swap rate is currently around 4.60-4.70%, so adding a spread for mortgages explains why a two-year mortgage rate is unlikely to be below 5% right now,” Smith says.
Sarah Coles of AJ Bell dates the turn to late summer. “The mortgage misery we’re feeling right now kicked off in early August, with the first mortgage rate rise since April,” she says.
What Homeowners Are Facing: Higher Mortgage Costs Will Pay
Uswitch puts the monthly payment on an average mortgage at £1,323 at 6%, compared with £1,200 at 5%. On bigger loans, the gap widens sharply. As reported by The Times, a 25-year £350,000 loan costs about £1,484 a month at 2% but £2,108 at 5.3% — an extra £624 a month, or nearly £7,500 a year.
Bank of England forecasts suggest a typical owner-occupier leaving a fixed rate in the next two years will pay around £45 more a month, against £120 for 2022-24 remortgagers.
The damage is concentrated, not universal. Some 750,000 households on rates below 3% will roll off this year and face an extra £170 a month. Just over five million homeowners should expect higher repayments by the end of 2028, up from four million projected in December.
CompareTheMarket’s figures show more than a million borrowers leaving two-year fixes this year face an average rise of £238 a month. A second million are leaving historically cheap five-year deals, where the jump is far steeper. Trade group UK Finance counts nearly two million fixes expiring this year from roughly 12 million mortgages. More than eight in ten borrowers hold a fixed rate, so most notice nothing until renewal day.
Households Living Through It
Holly Holland, 37, fixed her mortgage at 1.19% in 2021 on the Cheshire home she and her husband bought for £340,000. Their new rate is 4.6%, and payments have jumped by £400 a month. “The biggest frustration is you’re not getting any more for your money,” she told the Telegraph. “You’re still getting the same house.”
Saima Siddiqui, 33, is refinancing her Surrey flat after a 1.8% fix. “It was alright as it was, but the extra £200 means I’m going to have to budget a lot more carefully,” she said. Brokers report clients shifting from 1.1% to 4.59%, manageable only because lenders stress-tested at higher rates.
Cheap Deals are Disappearing Fast
Data tracked daily by Moneyfacts shows nine fixed products below 5% today, down from 1,494 at the start of last month. Barclays withdrew its 4.75% two-year and 4.93% five-year fixes, leaving its best deals at 5.05% and 5.03%. Nationwide Building Society, Virgin Money and TSB followed, with several big lenders repricing at least three times in September.
“Average fixed mortgage rates rising back to three-year highs will be disastrous news for borrowers,” says Rachel Springall, a finance expert at the data firm. Trackers had the typical two-year fix near 4.25% back in February.
How the Squeeze is Cooling the Housing Market
New seller asking prices rose 1.0%, or £3,575, to £371,015 this month, figures carried by the Independent show. Values remain 0.1% below a year ago, and the rise undershoots the 1.3% average for October. London gained 2.5% to £673,942, yet it sits 1.7% down annually.
Colleen Babcock, a property expert at Rightmove, said, “It’s an early sign that higher mortgage costs are putting pressure on affordability even in markets with lower property prices, affecting the areas and types of property that buyers can afford.”
Demand has thinned. Enquiries to agents are 9% below last year, sales agreed are down 8%, and stock is at its highest for this time of year since 2014, as detailed in NST’s coverage. Mortgage expert Matt Smith added: “Some buyers will understandably be reassessing their budget and what they can afford or feel comfortable borrowing.”
The effect reaches beyond housing. The Bank found that for every expected £1 rise in monthly payments, homeowners cut £28 from monthly spending, rising to £37 by June 2027.
Budget Day Adds Another Worry
The Autumn Budget falls on 28 October. Research featured by The Intermediary sets out a planned high-value council tax surcharge from April 2028. Some 165,000 English homes worth £2m or more would pay from £2,500 a year, rising through £3,500 and £5,000 to £7,500 for those above £5m.
Elliot Castle, chief executive of We Buy Any Home, urges caution: “Property should be viewed as a long-term investment, not something people buy or sell in an attempt to time every change in the market or every budget announcement.”
Downsizing is one escape route, though a costly one. Polling by Opinium found 24% of homeowners would consider it and 10% already have, yet they want around £108,516 released to justify a move. Stamp duty deters 27%.
What To Do If Your Deal Ends Soon
Act early. Most lenders let you reserve a rate three to six months ahead and switch down if something cheaper appears, so waiting costs more than booking. Never drift onto a standard variable rate. Compare total cost, not headline rate, since fees swallow savings. Extending the term eases monthly pressure.
FAQs
Q. How much are mortgage payments going up in 2026?
A. Most borrowers leaving a two-year fix face around £238 more a month. Those leaving sub-3% five-year deals typically pay £170 to £400 extra.
Q. Why are mortgage rates rising if the Bank of England has not raised rates?
A. Fixed rates track swap markets, not the base rate. Higher oil prices and inflation expectations have pushed swaps up, so lenders reprice regardless.
Q. Will mortgage rates fall again soon?
A. Economists expect little relief until oil prices ease. Markets also expect a base rate near 4.25% by the year’s end, which lifts tracker costs.
Q. Should I fix it for two years or five years?
A. A two-year fix lets you remortgage sooner if rates drop. A five-year fix costs more now but protects your budget if rates stay high.
Q. When can I lock in a new mortgage rate?
A. Usually three to six months before your deal ends. Booking early protects you, and many lenders allow a switch to a cheaper rate later.’
Q. Is downsizing worth it to cut mortgage costs?
A. It reduces borrowing and bills, but stamp duty, legal fees and moving costs eat the gain. Most owners want six figures released to justify it.
Sources & References:
- Independent – New seller asking prices rose 1.0%, or £3,575, to £371,015 this month.
- The Intermediary – There will be a planned high-value council tax surcharge from April 2028.
- NST – Enquiries to agents are 9% below last year, sales agreed are down 8%, and stock is at its highest for this time of year since 2014.
- Morningstar – Oil is one of the contributing factors.
