HUNDREDS of thousands of homeowners are facing eye-watering hikes to their mortgage bills as borrowing costs soar in the wake of the escalating war in Iran.
Around one million British households have already rolled off cheaper fixed-rate mortgage deals since February, according to analysis of Bank of England data.
On average, these homeowners are now forking out between £50 and £70 more every month compared with their old rates.
Over a year, a £70 monthly rise adds up to £840 extra – and for those with bigger mortgages, the pain is even greater.
A homeowner refinancing a £500,000 mortgage could see their interest payments climb by more than £250 a month or £3,000 a year.
The figures are based on the jump in two-year fixed mortgage rates for those refinancing at a 75% loan-to-value ratio, which rose from 3.97% in February to 4.92% in August.
For an average outstanding mortgage balance of around £164,000, that shift adds £50 to £70 to monthly repayments.
Now the situation is worsening further, with mortgage rates shooting up in just the past month amid fears the Bank of England could hike interest rates to 4.75% by next summer as the conflict in the Middle East rattles global markets.
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Falling onto your lender’s Standard Variable Rate (SVR) could cost you hundreds of pounds extra each month.
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According to Moneyfacts, the average two-year fixed rate has jumped from 5.60% to 5.88% in less than a month.
Borrowers with smaller deposits have been hit even harder, with the average two-year fixed rate at 95% loan-to-value surging from 6.15% to 6.33%.
Five-year fixed rates have also climbed, rising from 5.63% to 5.91% – the highest level since October 2023, when mortgage rates spiked in the fallout from the disastrous mini-Budget under former Prime Minister Liz Truss.
The rise came after a wave of major lenders hiked their prices within the space of a week.
Banking giants including NatWest, Santander, HSBC and TSB all pushed up their fixed rates, with NatWest increasing charges by as much as 43 basis points and Santander raising them by up to 45 basis points.
Halifax, Lloyds Bank and Barclays also raised selected fixed rates.
Rachel Springall, a finance expert, warned that more pain could be on the way for borrowers.
She said: “Swap rates remain near 30-day highs, so there is still some uncertainty around the future direction of fixed mortgage pricing.”
She added: “More hikes could be coming if lenders have not yet caught up to higher swap rates.”
The Bank of England has estimated that around 750,000 households with fixed-rate deals set to expire in 2026 are currently locked into rates below 3%, meaning many face a painful jump when they come to remortgage.
Springall pointed out that back in February 2022, borrowers could get five-year fixed mortgage deals below 2% – a far cry from today’s rates.
She warned that moving off these expiring deals “will be a huge shock for borrowers.”
That is why anyone whose current deal is due to expire within the next six months should consider locking in a new rate now rather than waiting and risking further rises.
Mark Harris, chief executive of SPF Private Clients, added: “Mortgage offers are typically valid for six months, so if you are concerned that rates will rise further, it would be sensible to lock into a new deal ahead of time now.”
Crucially, if rates fall before the mortgage completes, most borrowers are able to switch to a cheaper offer instead – although it is worth double-checking your lender’s specific rules first.
Harris said the choice between a two-year and a five-year fix ultimately comes down to personal circumstances.
He said: “If you would struggle to pay the mortgage were rates to rise, then a fixed rate is a sensible option.”
He added that a five-year fix could suit those wanting long-term certainty, particularly as the gap between two-year and five-year rates is currently unusually narrow.
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