The latest research, from specialist property lending experts, Octane Capital, has revealed that while interest rates may have frozen, those coming to the end of a fixed rate mortgage term are likely to see the cost of their monthly mortgage repayments climb by hundreds of pounds a month.

Octane Capital analysed the latest available data from the Bank of England (November 2023) on the average rate of a two year fixed term mortgage (75% LTV), how this rate has changed over the last two years, and what it means for borrowers who have reached the end of their initial two year term when it comes to the monthly cost of repaying their mortgage.

The research shows that in November 2021, when the base rate sat at a record low of just 0.1%, the average buyer would have required a mortgage loan of £200,528 – having placed a 25% deposit of £66,843 on the average UK house price which at the time sat at £267,370.

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With the average mortgage rate at the time sitting at 1.53%, those opting to make a full monthly mortgage repayment would have paid an average of £805 per month, while those opting to make an interest only payment would have paid £256 per month.

However, those now coming to the end of their two year fixed term face a considerable increase in the cost of their monthly mortgage payments.

While the Bank of England has made three consecutive decisions to hold the base rate, it now sits at 5.25%, far higher than the 0.1% seen in November 2021. As a result, the average mortgage rate for a two year fixed term currently sits at 5.28% – an increase of 3.75% in the last two years.

Those who reached the end of their two year fixed term in November 2023 would have paid off £13,374 of their original mortgage loan of £200,528, leaving a remaining balance of £187,154.

Despite needing to borrow less, they will have seen the cost of a full monthly mortgage repayment increase from £805 per month to £1,173 – an increase of £368 per month (+46%).

However, those opting to make an interest only payment will have seen the monthly cost of their mortgage repayment climb from £256 per month to £823 – an increase of £568 per month (+222%).

CEO of Octane Capital, Jonathan Samuels, said, “January can be a financially tough time for many households as they struggle to rebound from the increased cost of the Christmas period.

For those approaching the end of a two year fixed mortgage term, it’s set to be an even tougher start to the year than usual. Having originally locked their mortgage when rates were at an all time low, they now face the prospect of renegotiating their terms following two years of consistent interest rate hikes.

As a result, they are likely to see the cost of their monthly mortgage repayments increase significantly and for those who may have previously overstretched while rates were favourable, this could prove problematic, to say the least.”