Is your fixed rate mortgage ending in 2023?

UK Finance estimates that around 800,000 fixed-rate mortgages will expire before the year is out, with a further 1.6m coming to an end in 2024.

According to the Bank of England, thousands of UK households could be facing price hikes of over £200 per month if their fixed rate ends in the final half of 2023.

With so many fixed mortgage deals ending this year, and with monthly repayments due to jump up for people who are coming off fixed rates, there are hundreds of thousands of homeowners across the country wondering what they should do next. If you fall into this category, read on to find out how to best approach the ending of your fixed rate mortgage.

Where are mortgage rates now?

Interest rates have risen astronomically since the end of 2021 – when the base rate sat at 0.1%, and two-year fixed rate mortgages were available for just 0.89%.

Now, the base rate sits at over 5%, and the average two-year fixed rate sits at 6.85% – a chilling figure for anyone looking to remortgage anytime soon (but fear not – our guide to everything you need to know about remortgaging is on hand). 

Two-year fixed rates are currently the highest they’ve been since the 2008 financial crisis, and the mortgage market remains unpredictable as lenders pull and reprice their deals in line with ever-changing interest rates. 

The Bank of England (BOE) shared that the annual rate of inflation peaked at the end of 2022, mostly due to rises in the cost of energy and food. It currently stands at 7.9%, which is considerably higher than the BOE’s target rate of 2%. When inflation is above the target rate, the BOE raises interest rates to try and bring inflation back under control. The BOE has been steadily increasing interest rates since December 2021, with the most recent rise being in August 2023, and another expected by November this year. 

Needless to say, this has had an enormous impact on the mortgage market, with lenders withdrawing hundreds of deals in recent weeks, as well as raising interest rates on their fixed rate mortgages.

Two-year mortgage rates

Rates will always fluctuate slightly, but at the time of writing, the average two-year rate is 6.85%.

Five-year mortgage rates

The average five-year mortgage rate currently sits at 6.17% – the highest since last October.

Ten-year mortgage rates

The average ten-year mortgage rate is around 5.86%.

How does this affect my remortgage?

The mortgage market is currently pricing in further increases to interest rates, accounting for as much as 0.8% in the next year, which would take the BOE base rate to somewhere around 6%.

In real terms, this would push the monthly repayments on a typical 25-year mortgage up by £36 per £100,000 borrowed. This means that those on a £200,000 variable rate would see their monthly repayments go up by £72 each month if they didn’t lock in a fixed rate beforehand. Economists have predicted that total annual home loan payments in the UK could rise by £15.8bn by 2026 – resulting in a £2,900 blow for the average household remortgaging in 2024.

Though these figures may all sound a little scary, the best thing you can possibly do to protect yourself (and your finances!) is to plan ahead when it comes to your remortgage. You don’t have to wait until your current deal finishes before you start looking for your next mortgage, so it’s advisable to start shopping around in the months beforehand. Most lenders will allow you to sign up three to six months in advance, so if you’re in a position to remortgage, it may pay off to act sooner rather than later and lock in the best possible fixed rate deal.

In such a turbulent market, it’s always a good idea to speak to an expert who will assess all of your options and support you in making the best possible financial decision.

Which remortgage term should I get?

There’s definitely no universal rule when it comes to the best mortgage term for each household. There are a number of factors to consider, such as the remaining years on your current mortgage, your outgoings, and your plans for the future. A mortgage is one of the biggest financial commitments you’ll ever make, so it’s important to make sure it fits around your personal circumstances.

If you have a low loan-to-value (LTV), then it’s a good idea to fix your mortgage, as you’ll be able to secure a low fixed interest rate.

The longer your fixed term, the longer you’ll be locked into an interest rate, which can work in your favour or against you – depending on the BOE base rate. Given that it’s unlikely that the BOE base rate will be cut any time soon, it’s safe to assume that a fixed rate will be more of a benefit to you than a loss.

It’s important to bear in mind that although there’s no limit to how many times you can remortgage if you opt for one of the longer fixed term deals, you may have to pay exit penalties and other fees if you want to pay your mortgage off, move to a new lender, or borrow more money. Recently, fixed term deals as long as 40 years have been introduced to the market – which inevitably come with a higher rate, but offer certainty over the amount you’ll have to pay over the long term. It also avoids the need to remortgage every few years, saving money and stress in the process.

When it comes to more traditional, shorter term mortgages, the most popular options are two-year and five-year fixed terms. Those who are preparing to remortgage will be most likely to choose between one of the two, so it’s important to look at the benefits of both. Currently, the best two-year fixed rate mortgage with a 60% LTV is 5.9%, and the best five-year fixed rate mortgage with the same LTV sits at 5.28%. Essentially, this means that a two-year fixed rate deal is currently more expensive due to the future forecast of where the BOE base rate is expected to be.

Those who are hoping that rates will come down earlier than predicted might opt for a two-year deal in the hope that they can remortgage to a better rate in a couple of years time, whereas those who want the certainty of knowing how much their mortgage will cost each month may feel more comfortable opting for a five-year deal. However, a lot can happen in five years, and if interest rates come down, you may find yourself wanting to remortgage early to take advantage of the lower rates – which will then leave you with early repayment charges to face. Early repayment charges (ERC) can be pretty hefty depending on when you remortgage, with some as high as 5% of the outstanding balance in year one. This is why it’s crucial to think about what your life may look like over the coming years, as this will be a major influencing factor in what sort of remortgage term you should go for.

Needless to say, the world of remortgaging can feel like entering a maze if you don’t know what you’re looking for or where to turn. If you’re feeling unsure about the best option for you, or you want a better understanding about what’s available on the current market, feel free to book a no-obligation chat with a member of the Lendese team.

We’ll review your current mortgage and get a clear idea of what you’re trying to do, so we can present you with the best options available and get you locked in to a deal that suits you.

Get in touch with the team today.