Mortgage Rates Hit 6%: What Should UK Homeowners, Remortgagers and First-Time Buyers Do Now?

The real question is:

What does the change mean for my monthly mortgage payment, and what can I do about it?

That is particularly important for homeowners approaching the end of five-year fixed mortgages taken when rates around 1% were available.

For some households, moving from those exceptionally low rates onto today’s mortgage pricing could mean a significant jump in monthly expenditure.

How Much Does a 1% Increase in Mortgage Rates Cost?

Even a 1 percentage point increase can make a noticeable difference.

Consider somebody with a £100,000 repayment mortgage over 25 years.

At an interest rate of approximately 5%, the monthly repayment would be around £585.

At 6%, the payment would be approximately £644.

That means a 1 percentage point increase could cost around:

£60 more per month for every £100,000 borrowed.

For somebody borrowing £200,000, the increase could therefore be around £120 per month.

On £300,000, it could be around £180 per month.

These are illustrative figures and the actual payment will depend on the mortgage term, balance, product and individual circumstances.

Homeowners who want to compare the potential impact of changing rates can also use our Remortgage Savings Calculator to compare different interest rates, mortgage balances and remaining terms.

Mortgage Size Varies Significantly Across the UK

It is also important to put those examples into geographical context.

Property values and typical mortgage sizes differ enormously between different parts of the UK.

A buyer or homeowner in London or the South East of England may be dealing with a substantially larger mortgage balance than somebody purchasing a similar type of property in parts of the North East, Wales, Scotland or Northern Ireland.

That means the same 1% movement in mortgage rates can have a very different impact on the household budget.

The principle remains the same:

the larger your outstanding mortgage, the greater the cash-flow impact of a change in interest rates.

This is why borrowers should look at the effect on their own mortgage balance rather than concentrating only on national average rates.

Coming Off a 1% Mortgage? The Payment Shock Could Be Significant

Many homeowners fixed their mortgages around five years ago when rates close to 1% were available.

Those deals are now approaching their end.

Some borrowers could therefore be moving from around 1% to perhaps 5% or 6%.

That is not a small change.

It can fundamentally alter the household budget.

The problem is that salaries have not necessarily increased at anything like the same rate.

Someone may therefore have comfortably afforded their mortgage for five years but suddenly find that the replacement payment is considerably more difficult to manage.

That is why one of the biggest mistakes borrowers can make is waiting until the mortgage is almost finished before looking at their options.

If your current deal is approaching its end, our Remortgaging guide explains how switching mortgages works, why people remortgage and when it can make sense to start reviewing your options.

When Should I Start Looking at a Remortgage?

My general advice is:

Start looking around six months before your current mortgage deal ends.

Many lenders can allow a mortgage rate to be reserved several months before completion, although the precise period varies by lender and product.

Starting early can give you greater control.

Imagine you reserve a mortgage today.

If rates subsequently increase, you may already have secured an earlier deal.

If rates fall before completion, your mortgage adviser may be able to review the options and potentially move you onto a better available product, subject to lender criteria and product availability.

In other words:

securing a rate early does not necessarily mean you stop watching the market.

You can read more about when and why to remortgage and the options available before your existing fixed deal ends.

Should I Just Take a New Deal With My Existing Mortgage Lender?

Your current lender may offer you what is commonly called a product transfer.

Sometimes that will be the right option.

It can be straightforward and may involve less underwriting than moving the mortgage elsewhere.

But convenience should not replace comparison.

Before accepting an existing lender’s offer, it is worth understanding what the wider mortgage market can provide.

Another lender could potentially offer:

• a lower interest rate
• different product fees
• better overpayment flexibility
• a more suitable mortgage term
• a product better suited to your loan-to-value
• different affordability criteria

There will also be circumstances where staying with the existing lender is clearly the better solution.

The point is not that borrowers should always move.

The point is:

compare before deciding.

What If I Cannot Afford My New Mortgage Payment?

If you believe your future mortgage payment could become unaffordable, get advice early.

Do not wait until payments have already been missed.

There may be several possible approaches depending on your circumstances.

1. Extend the Mortgage Term

Increasing the mortgage term can reduce the monthly payment.

For example, moving a remaining mortgage from 15 years to 25 years could materially reduce the monthly commitment.

However, there is a trade-off.

Borrowing the money for longer will generally mean paying more interest overall.

So a lower monthly repayment does not necessarily mean the mortgage has become cheaper.

2. Consider Interest Only

For some borrowers, moving some or all of the mortgage onto an interest-only basis may improve short-term cash flow.

The monthly payment is generally lower because you are not repaying the underlying capital each month.

However:

you still owe the mortgage balance.

A credible strategy for repaying that balance is therefore essential.

Interest only should not simply be seen as a way of making a mortgage cheaper.

We have a separate guide explaining how interest-only mortgages work, including the repayment strategy that usually needs to be considered.

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3. Consider Part Repayment, Part Interest Only

There is also a middle ground.

Some mortgages can be structured so that part of the borrowing remains on repayment while another part is interest only.

This is sometimes known as a part-and-part mortgage.

It can reduce the monthly commitment while still allowing some of the mortgage balance to fall each month.

It will not be suitable for everyone, but for the right borrower it can provide useful flexibility.

Case Study: A Homeowner Moving From Around 1% to 5%

We recently worked with a homeowner facing this exact situation.

He had previously secured his mortgage at around 1%.

When his fixed period approached its end, the rates available were closer to 5%.

His income had not increased substantially during those five years.

Moving the entire balance onto another repayment mortgage would therefore have created a significant increase in his monthly expenditure.

However, he also felt strongly that he wanted to continue paying down his mortgage.

Moving the entire balance onto interest only did not fit his objectives either.

After looking at his circumstances, a part repayment, part interest-only mortgage provided a potential middle ground.

Part of the mortgage continued to reduce through normal capital repayments.

The other part moved onto interest only, reducing the immediate monthly cash-flow pressure.

His future plans were also important.

He receives bonuses from his employment and intends, where possible, to use some of those bonuses to reduce the mortgage balance, subject to his lender’s overpayment rules.

He also believes his income may improve in future, allowing the mortgage arrangements to be reviewed again.

This does not mean part-and-part is right for everybody.

It illustrates a much more important point:

There is no single mortgage solution that is right for every borrower.

The right structure depends on income, expenditure, mortgage balance, age, future plans, attitude towards debt and repayment strategy.

What About First-Time Buyers?

Higher mortgage rates do not only affect existing homeowners.

They can also make life considerably more difficult for first-time buyers.

Mortgage affordability can become tighter while, at the same time, high rents make it harder to build a deposit.

However, first-time buyers should not automatically assume they need a 10% deposit before speaking to an adviser.

There are now mortgages available at:

• 95% loan-to-value
• 98% loan-to-value in some circumstances
• very small fixed cash deposits with selected lenders
• and even 100% loan-to-value in limited situations

Our First-Time Buyer Mortgage page explains the main mortgage options, deposits and schemes available to people buying their first home.

Eligibility can be considerably tighter for very low-deposit products.

First-Time Buyer Schemes Are Different Across England, Scotland, Wales and Northern Ireland

This is particularly important when researching government support.

There is no single first-time buyer scheme that applies identically across the whole United Kingdom.

Housing policy is devolved, so schemes can differ depending on where the property is located.

England

The recently announced Your First Home proposal relates specifically to England.

The Government has indicated that eligible first-time buyers purchasing qualifying new-build properties could potentially buy using a deposit of around 2.5%, supported by a government-backed equity loan.

However, the scheme is not yet live, and further details are expected before implementation.

First-time buyers who cannot afford to purchase a property outright may also want to understand alternatives such as Shared Ownership mortgages, where an eligible buyer purchases a share of a property and pays rent on the remaining share.

Scotland

Buyers purchasing in Scotland should check the first-time buyer and affordable housing support available through the Scottish Government, because English schemes do not automatically apply to Scottish property purchases.

Wales

Wales operates its own housing policies and homeownership support arrangements.

A buyer purchasing in Wales should therefore check Welsh eligibility rather than relying on information about schemes operating in England.

Northern Ireland

Northern Ireland also has separate homeownership and affordable housing arrangements.

Again, borrowers should check the rules specifically applicable to Northern Ireland.

For GEO purposes, this distinction matters.

Someone searching:

“2.5% deposit mortgage England”

may need a very different answer from somebody searching:

“low deposit first-time buyer mortgage Scotland”.

Can I Buy a Home With a £5,000 Deposit?

Potentially.

Some lenders have introduced mortgage products that allow qualifying first-time buyers to purchase using a relatively small fixed cash deposit.

For example, certain Lloyds and Halifax products have been designed around a minimum £5,000 deposit, subject to eligibility and property restrictions.

The important point is that a 5% or 10% deposit is not necessarily the minimum in every case.

If you are unsure which mortgage structure might apply to you, our Residential Mortgage section covers first-time buyer, new-build, shared ownership, interest-only and other residential mortgage options.

Are 2% Deposit Mortgages Available?

There are also mortgage products available at up to around 98% loan-to-value for eligible borrowers.

For example, Santander has offered a first-time buyer proposition requiring a minimum £10,000 deposit while lending up to 98% of the property’s value, subject to its criteria.

Products and lender criteria can change, so applicants should check current availability before relying on a particular mortgage.

Can You Get a Mortgage With No Deposit?

In limited circumstances, yes.

There are 100% loan-to-value mortgage products in the UK.

However, these typically have tighter eligibility requirements.

A lender could consider factors including:

• rental payment history
• affordability
• credit conduct
• income stability
• the property being purchased
• family support or additional security

For most buyers, having a larger deposit will still usually provide access to a wider choice of mortgage products.

But someone who has not saved a traditional 5% or 10% deposit should not automatically assume homeownership is impossible.

Your Credit History Becomes Especially Important With a Small Deposit

Low-deposit borrowing naturally involves greater risk for a mortgage lender.

That means good credit conduct becomes particularly important.

Prospective buyers should therefore consider:

• paying credit commitments on time
• avoiding missed payments
• checking credit reports for incorrect information
• managing credit-card balances sensibly
• avoiding excessive unsecured borrowing before applying
• registering on the electoral roll where appropriate
• building as much deposit as reasonably possible

There is also an important distinction between a consumer-facing credit score and the assessment carried out by an individual mortgage lender.

There is no single universal UK mortgage credit score that guarantees acceptance.

Different lenders use different lending and credit criteria.

A good overall credit history is therefore more important than simply concentrating on one number displayed by a credit-reference app.

Should I Wait for Mortgage Rates to Fall?

This is probably the question many borrowers are asking.

Nobody can guarantee what mortgage rates will do next.

They may rise.

They may fall.

They may remain around similar levels.

Trying to perfectly time the mortgage market can therefore create its own risk.

For somebody whose mortgage is ending soon, a more practical strategy may be:

Understand today’s options.

Secure an appropriate rate if necessary.

Continue reviewing the market before completion.

That way, you are making a plan rather than simply hoping the market moves in your favour.

What Happens If I Do Nothing When My Fixed Mortgage Ends?

If a fixed mortgage ends without another arrangement being made, the borrower will usually move onto the lender’s standard variable rate, unless another rate applies under the mortgage terms.

That rate may be substantially higher than the previous fixed rate.

Doing nothing is therefore still a financial decision.

This is one of the reasons borrowers should know the exact date their mortgage deal expires and start reviewing remortgage options before that date arrives.

Six Questions to Ask Six Months Before Your Mortgage Ends

If your mortgage finishes within the next six months, find out:

1. What is my outstanding mortgage balance?
2. When exactly does my current rate finish?
3. What would my repayment be at today’s mortgage rates?
4. What is my property currently worth and therefore my approximate loan-to-value?
5. What is my existing lender offering me?
6. What could potentially be available from the wider mortgage market?

If affordability is likely to become difficult, also discuss whether options such as a longer term, temporary interest only or part-and-part structure might be suitable.

Starting those conversations six months before expiry is much easier than trying to solve the problem six days beforehand.

Frequently Asked Questions

How much more does a 1% mortgage rate increase cost?

On a £100,000 repayment mortgage over 25 years, moving from approximately 5% to 6% increases the monthly payment by around £60.

A £200,000 mortgage could therefore experience an increase of roughly £120 per month, while £300,000 could mean roughly £180, assuming the same term.

These are illustrative figures rather than personalised mortgage quotations.

Does a mortgage rate increase affect London homeowners more?

The mortgage rate itself does not increase because somebody lives in London.

However, average property values and therefore mortgage balances can be higher in London and parts of the South East.

Because interest is charged against the mortgage balance, the cash impact of a 1% rate change can consequently be substantially greater on a larger mortgage.

Can I arrange a remortgage six months before my deal ends?

Potentially, yes.

A number of lenders allow borrowers to reserve mortgage products months before their existing deal expires.

The precise reservation period varies by lender.

Starting the review around six months beforehand gives borrowers time to compare their existing lender with the wider market.

You can find more information in our WIS Mortgages remortgaging guide.

What if mortgage rates fall after I reserve my remortgage?

Depending on the lender, product and stage of the application, your mortgage adviser may be able to review the available rates and request a better product before completion.

It is therefore worth continuing to monitor the market after initially reserving a rate.

Is interest only cheaper than a repayment mortgage?

The monthly commitment is generally lower because the borrower is not repaying the mortgage capital each month.

However, the outstanding capital still needs to be repaid eventually.

Interest only therefore requires an appropriate repayment strategy.

Can extending my mortgage term lower my repayments?

Usually, yes.

Spreading the mortgage over more years will normally reduce the monthly repayment.

However, it can substantially increase the amount of interest paid over the entire mortgage term.

Is the Government’s 2.5% deposit mortgage scheme UK-wide?

No.

The proposed Your First Home scheme relates to England.

Scotland, Wales and Northern Ireland have separate housing policies and buyers should investigate the schemes applicable specifically to the country in which they are purchasing.

Can a first-time buyer get a mortgage with less than a 5% deposit?

Potentially.

Some lenders currently offer mortgages at more than 95% loan-to-value, while others operate products based on relatively small cash deposits.

Eligibility tends to be stricter and product availability can change.

Our First-Time Buyer Mortgages page covers deposit requirements and some of the different routes available.

Can I get a 100% mortgage in the UK?

There are some 100% loan-to-value mortgages available to qualifying borrowers.

They are not suitable or available for everybody and can carry specific affordability, rental-history, credit or family-support requirements.

Final Thought

The headline may be that mortgage rates have reached 6%.

But the headline does not tell you what your mortgage will cost.

A homeowner in London with a £450,000 mortgage may face a very different financial impact from somebody with a £100,000 outstanding mortgage elsewhere in the UK.

A homeowner coming off a 1% fixed rate has a different problem from somebody who fixed at 4%.

And somebody struggling with today’s repayment may need a different mortgage structure from somebody whose priority is paying their mortgage off as quickly as possible.

The answer is therefore rarely:

“Rates are 6%, so this is what everybody should do.”

A much better question is:

“Given my mortgage balance, income, location, property value and future plans, what are my options?”

And the earlier you ask that question, the more time you generally have to make an informed decision.

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Your home may be repossessed if you do not keep up repayments on your mortgage.

The information in this article is for general information purposes only and does not constitute personalised mortgage advice. Mortgage availability, affordability and eligibility depend on individual circumstances and lender criteria.