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Sam covers personal finance topics, from the best savings rates to the reasons mortgage lenders say no. He enjoys crunching the numbers to help consumers get ahead.
Borrowers have become used to higher mortgage rates in recent years, but many homeowners are only now starting to feel the impact.
More than 255,000 homeowners are due to come off five-year fixed-rate mortgages over the next three months, according to analysis by specialist lender Together. Many borrowers fixed when rates were at record lows, meaning their next deal could cost significantly more.
Here, Which? explains how mortgage rates have changed over the past five years, how much your repayments could rise and how to find the best mortgage deal.
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At the start of May 2021, the average five-year fixed-rate was 2.79%. Going into the archives, we found a Santander five-year fix that offered an interest rate of 1.19% from May 2021. But fast forward to now, and it's a very different picture.
When we last checked, on 18 May, the figure was 5.67%. The average two-year fixed-rate is even higher at 5.75%.
Of course, it is possible to find better deals than these. For borrowers remortgaging or moving home, some of the cheapest fixed-rate deals are currently below 5%.
Tracker mortgages are currently your best bet for securing the lowest possible rate. Unlike fixed-rate mortgages, tracker deals move in line with the Bank of England base rate, meaning your monthly repayments can go up or down.
For those moving home or remortgaging with a loan-to-value (LTV) below 75%, sub-4% tracker mortgages are available. However, there is a risk that repayments could increase if interest rates rise.
Ultimately, whatever product you choose for your next mortgage, if you are coming off a five-year fix, your next mortgage will have a substantially higher rate.
To help you understand what your monthly repayments could look like when you remortgage, we've worked out costs for two example borrowers across different mortgage products and loan-to-value (LTV) levels.
| LTV | Two-year tracker | Two-year fixed-rate | Three-year fixed-rate | Five-year fixed-rate |
|---|---|---|---|---|
| 60% (or less) | £1,207.75 | £1,279.38 | £1,285.90 | £1,285.90 |
| 75% | £1,220.41 | £1,288.08 | £1,292.45 | £1,291.36 |
| 85% | £1,239.54 | £1,305.59 | £1,308.89 | £1,307.79 |
Assumes any mortgage fees are paid upfront rather than added to the loan. Cheapest mortgage rates taken on 18 May.
In this scenario, your previous monthly repayments would have been roughly £1,080, based on the rates available in May 2021. This means that, regardless of your LTV ratio or the product you choose, your repayments will increase by more than £120 a month. If you choose to fix again for five years and have a higher LTV, your monthly repayments will rise by more than £200.
You are coming off a five year fixed-deal with 15 years left on your mortgage and a remaining balance of £180,000.
| LTV | Two-year tracker | Two-year fixed-rate | Three-year fixed-rate | Five-year fixed-rate |
|---|---|---|---|---|
| 60% (or less) | £1,327.83 | £1,388.98 | £1,394.53 | £1,394.53 |
| 75% | £1,338.67 | £1,396.39 | £1,400.10 | £1,399.17 |
| 85% | £1,355.01 | £1,411.27 | £1,414.07 | £1,413.14 |
Assumes any mortgage fees are paid upfront rather than added to the loan. Cheapest rates taken on 18 May.
In this scenario, your previous monthly repayments would have been around £1,230. This means that, even in the best-case scenario, your monthly payments would rise by almost £100. If you wanted to fix again for five years, your repayments would increase by between £160 and £180 a month, depending on your LTV.
In both examples, we have conservatively assumed that the borrower only secured a rate slightly below the market average for May 2021. If the borrower was able to secure one of the best deals, less than 1.5%, then the monthly repayments will increase by at least an additional £100.
It can be tempting to stick with your current lender when your mortgage deal ends, especially if you already bank with them. However, this won't always get you the cheapest deal.
To find the cheapest deal, it is best to shop around. You can use our best rates page to find which lender offers the best deal for your circumstances. The page is updated twice a day to ensure it provides up-to-date information.
When searching for a new deal, borrowers need to be vigilant that table-topping deals really offer the best value for money. For example, Halifax offers a two-year tracker with a rate of 3.96%, but it comes with a substantial upfront fee of £1,499. In some cases, a slightly higher rate with no fees will actually be cheaper.
If you expect to be in a position to overpay your mortgage or pay it off before the term ends, early repayment charges (ERCs) are another factor to consider.
One way to ensure your mortgage balances a competitive rate with low fees is to seek advice from a mortgage broker, who can search the market to find the best deal for your needs. A very small number of lenders, such as First Direct, only offer mortgages when going direct to the lender.
If you're in the last six months of your fixed term, you can start searching for a new deal now.
If you've got more than six months left, it's best to sit tight for now. If you lock in a deal too early, you may need to pay early repayment charges to your current lender, which can run to thousands of pounds.
If you're currently on your lender's standard variable rate (SVR), then you can likely switch to a cheaper deal. Lender SVRs currently average just above 7%, far above fixed rates or trackers.
