750,000 households face a crippling mortgage hike as cheap sub-3% rates vanish from the market

HUNDREDS of thousands of households are facing crippling mortgage hikes this year.

Bank of England figures suggest 750,000 households whose fixed-rate deals are set to expire this year are currently paying rates below 3%.

But with cheaper rates disappearing, the average homeowner is facing an average repayment increase of around £170 per month.

Lenders began increasing mortgage rates in July because of renewed unrest in the Middle East.

That’s because lenders base their mortgage pricing on swap rates, which affect how much it costs banks to borrow.

When there is global uncertainty and fears of rising inflation, swap rates often increase – and therefore mortgage rates tend to follow.

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The average two-year fixed rate rose by 0.11% in July to 5.63%, according to Moneyfacts.

Meanwhile, the average five-year fix rose by 0.14% to 5.66%.

The lifespan of the average deal also fell to 11 days, three days less than the month before.

Rachel Springall, finance expert at Moneyfacts, said: “Lenders were somewhat forced to U-turn on fixed rate cuts in July, knocking back the short-lived progress of three consecutive months of reductions to the average two- and five-year fixed rates…

“The prolonged conflict has driven up oil and energy prices, raising inflationary fears which could in turn lead to future base rate increases by the Bank of England.”

Many of those facing price hikes this year are coming off five-year deals they took out in 2021.

At the time, homeowners were able to get competitive deals below 3% throughout the year.

If you had £110,000 left to pay on your mortgage with a 25-year term, your monthly payments would be £516 a month with a fixed rate of 2.9%.

But if your rate increased to 5.66%, your payments would rise to £686 a month.

Matt Coulson, founder of mortgage broker Heron Financial, said: “Deals are lasting barely a fortnight, and it’s the borrowers with the least room who feel it most, with some five-year fixes at 95% loan-to-value now back above 6%.”

But in better news, mortgage product availability rose for the fourth consecutive month.

Lenders had withdrawn a swathe of deals in March and April following the initial outbreak of the Iran war.

Roughly 90% of deals have since returned.

Plus, a small number of lenders have started to cut rates again.

NatWest is making more than 200 rate cuts across its new business range today, with prices falling by up to 24 basis points.

What should you do if your mortgage deal is ending?

If you’re currently on a rate below 3%, it’s almost certain your monthly payments will rise.

But you can limit the damage by looking for a new deal early – around six months before your current one ends.

Ms Springall says: “Borrowers could choose to refinance with their existing lender for ease, but it’s always wise to shop around first to get a sense of the new rates on offer, particularly if coming off a low-rate deal.”

The recent rate rises are a reminder of why it’s important to lock in a good deal while you can rather than waiting for rates to fall.

If you do secure a mortgage deal but you see a cheaper one later down the line, you can usually switch to the new one as long as you haven’t completed yet.

Mr Coulson says it’s not yet clear what will happen in the mortgage market in the longer term.

“I’d be wary of reading a few weeks of churn as a new direction. What it does show is how twitchy pricing has become,” he said.

“The bigger picture hasn’t shifted. Until the monthly cost of borrowing genuinely comes down and stays down, this is what I’d expect: small moves in both directions, and a market that stays stuck rather than turning.”