Mortgage shock: Homeowners face £5,000 annual hit as rate fears grow

Homeowners coming off five-year fixed-rate mortgages face paying almost £5,000 more a year, as fears of another interest rate rise drive more borrowers towards variable deals.

New analysis from L&C Mortgages shows that repayments on a typical £200,000 mortgage have jumped by £407 a month compared with November 2021.

The findings come as the Bank of England prepares for its next interest rate decision on 5 November. Markets expect a 0.25 percentage point increase, taking the base rate from 3.75% to 4%.

Meanwhile, separate figures from Moneyfactscompare.co.uk reveal a sharp rise in homeowners considering tracker and variable-rate mortgages.

Almost one in four remortgage borrowers researched these products in October, up from 14% in February.

The figures suggest some borrowers are willing to risk further rate increases to secure lower initial repayments.

Five-year mortgage deals leave borrowers facing steep increases

L&C’s analysis highlights the scale of the payment shock facing homeowners whose fixed-rate deals are ending.

In November 2021, the average five-year fixed remortgage rate among the ten leading lenders stood at 1.30%.

That meant monthly repayments of around £781 on a £200,000 mortgage over 25 years.

At today’s average rate of 5.16%, the same mortgage would cost £1,188 a month.

That represents an increase of £407 a month, or £4,884 a year.

First-time buyers also face substantially higher borrowing costs.

The average 95% loan-to-value two-year fixed rate has more than doubled, rising from 2.84% in 2021 to 5.75% today.

L&C estimates that this could add more than £3,900 to annual repayments on a comparable mortgage.

Mortgage rates are also significantly higher than when the Bank of England base rate last stood at 4%.

In August 2025, the average two-year fixed remortgage rate among leading lenders was 3.89%. Today, it stands at 5.13%.

That difference adds more than £140 a month to repayments on L&C’s example mortgage.

David Hollingworth, associate director at L&C Mortgages, said: “When base rate hit 4% just over a year ago, borrowers were able to secure fixed mortgage rates well under 4%.

“Today’s borrowers will be wondering what has changed to make for such a radical difference when there’s so little change to base rate.

“It highlights just how reliant fixed rates are on market sentiment and where rates may be heading, rather than the current level.”

Borrowers increasingly willing to gamble on tracker rates

Despite the prospect of higher interest rates, more homeowners are considering variable and tracker mortgages.

Moneyfactscompare.co.uk found that 24% of remortgage borrowers researched these products in October, compared with 14% in February.

That represents a 71% increase in the share of remortgage borrowers considering variable or tracker deals.

Interest among homemovers rose from 8% to 10%, while the figure for first-time buyers remained unchanged at 10%.

Across all borrower groups, the proportion researching variable or tracker products increased from 11% to 17%.

The figures measure online research rather than completed mortgage applications.

Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: “Higher rates are changing borrower behaviour. Around one in four remortgage borrowers researching mortgages on Moneyfactscompare.co.uk considered a variable or tracker deal in October. That is up from 14% before the war in Iran began.

“The figures suggest more borrowers are willing to gamble on interest rates to keep their initial mortgage costs down. But choosing a variable rate is a bet on where interest rates go next and today’s saving could quickly disappear.”

Further rate rises could add to the pressure

The average new two-year tracker mortgage rate rose from 4.54% to 4.68% during October alone, according to Moneyfacts.

Unlike fixed-rate mortgages, trackers move in line with the Bank of England base rate.

L&C calculates that a 0.25 percentage point rise would add around £28 a month to repayments on a £200,000 mortgage over 25 years, assuming the rate increases from 4.15% to 4.40%.

Borrowers on discounted variable deals also face uncertainty. Their repayments depend on lenders’ standard variable rates, which can change at the lender’s discretion.

French said: “Tracker borrowers could still come out ahead, but it depends on markets overestimating how far or how fast the Base Rate will rise.

“But they must be comfortable with the opposite risk that rates could rise further and stay higher for longer than expected.”

Hollingworth warned that borrowers coming off older fixed-rate deals face a difficult adjustment.

“The sheer scale of the change in rates since late 2021 means that those coming to the end of a 5 year fixed rate will have to steel themselves for a big hike in mortgage rate,” he said.

He added that borrowers should review their options well before their current deal expires.

Many lenders allow homeowners to secure a new fixed rate up to six months in advance. Borrowers may also be able to switch to a cheaper deal before completion if rates improve.

Hollingworth said variable-rate borrowers face a different risk.

“Variable rate borrowers will now be feeling the potential impact of higher inflation in their mortgage payment as well as other cost of living hikes.

“Unlike fixed rates, they react to base rate movement rather than expectation. The question on their lips will be whether an increase now could just be the first of a number to come.”