In the summer of 2024, William Dobinson bought a one-bedroom flat in Croydon, south London
In some ways, he was unfortunate with the timing, as the purchase coincided with a mini-spike in mortgage rates, driven by the Bank of England (BoE) taking longer than expected to hike rates.
William, who works in PR, eventually got a 5.18 per cent deal, paying £868 a month.
He opted for a two-year fix, despite five-year deals being cheaper.
“My thinking was that rates would come down, so I wanted the shortest term possible. I was expecting my monthly expenses to come down by another £100 or so in future,” he said.
But unfortunately, William’s mortgage fix ending has coincided with another rate spike and two-year deals have risen to an average rate of 5.67 per cent, according to Moneyfacts – the highest level since August 2024.
William, 32, will be able to lock in a new rate in around a week – 90 days before his fix with Barclays ends – but with rates rising every day at the moment, it’s unclear what level he may be offered.
“As things stand, it looks like my rate will still come down, but by substantially less than it would have done. However, who knows if that will still be the case when I can remortgage next week.”
He says the “worst case scenario” if rates keep rising is a small increase in his costs.
William says the “blind optimist” in him hopes that if he locks in a rate next week, they could drop lower before his fix ends in June and he would be able to move on to that new deal and pay less.
“It massively depends on timings,” he admits.
William is not alone. UK Finance figures show there was a spike in mortgage customers taking short, two-year fixes in 2024, with brokers saying many gambled on the fact that rates could drop in the following years.
Just under 400,000 mortgages – 43 per cent of the total – were sold at a two-year length or less, compared to 34 per cent the year before.
These customers will now be coming off deals, and some could face another rate rise.
Aaron Strutt, product director at Trinity Financial, explained: “Lots of homeowners have been thinking there were going to be some cheap deals for them to take, but unfortunately, it hasn’t worked out that way.
“Most people did not expect another war or that something that would have such a big effect on mortgage rates.”
Lewis Shaw, of Shaw Financial Services, said: “Hindsight is a wonderful thing. Most people would go back to 2021 and fix for 10 years at 2 per cent if given the option, but instead, hundreds of thousands of mortgage holders fall victim to optimism bias year after year.
“The reality is, it is always a gamble.”
Those coming off two-year rates may well feel hard done by, but some customers who could face an even bigger surprise are those who have not been exposed to higher rates at all yet.
Some customers locked in five-year mortgages in 2021, before the BoE started to increase interest rates and may be on deals with under 1 per cent interest.
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said: “Millions of remortgage customers are facing a shocking spike in their repayments, especially homeowners coming off a low five-year deal.
“If these borrowers lock into a shorter two-year term, they could see their repayments rise by almost £4,900 a year, which equates to almost £9,800 for the full two-year term.”
The analysis is based on these customers borrowing £250,000 on a 25-year term.
Almost all banks have raised their fixed mortgage pricing in recent weeks – sometimes multiple times – amid expectations that the BoE will hike interest rates later this year because of higher inflation.
Before March, experts had expected the BoE to cut interest rates this year, but on Monday, financial markets suggested there could be as many as four rate hikes.
The base rate is currently 3.75 per cent, so four 0.25 percentage point increases could bring the rate to 4.75 per cent.
Swap rates, which are crucial to mortgage pricing and are based on future predictions for where the base rate could go, have risen because of the conflict between the US and Iran.
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