The Payment Shock Ahead: 350,000 UK Households Facing Higher Mortgage Costs as Low Fixed Rates End

The UK mortgage market is entering a challenging new phase as hundreds of thousands of homeowners approach the end of ultra-low fixed-rate deals. During 2020–21, borrowers locked in historically low rates — many between 1% and 1.5%, and some even below 1%. Those deals are now expiring, and households are preparing for a significant jump in monthly repayments.

Around 350,000 households currently on exceptionally low fixed rates are expected to see their mortgage costs rise sharply when they refinance. With living costs already elevated and household finances under pressure, this shift is creating one of the largest payment shocks seen in recent years.

Why the Payment Shock Is So Significant

1. Ultra-cheap pandemic-era rates are ending

A large cohort of homeowners fixed at record-low rates during the pandemic. The transition from rates near 1% to rates in the 4–5% range represents a major financial adjustment for many.

2. Monthly repayments will increase substantially

For many borrowers, the rise isn’t marginal — it’s transformative.

Realistic scenarios based on today’s rate environment:

• £200,000 mortgage:
  A borrower moving from ~1.1% to a typical new fixed rate could see payments rise by £200–£300 per month.

• £300,000 mortgage:
  For borrowers with larger loans, the monthly increase could reach £400–£500.

• Sub-1% deals:
  Thousands of homeowners fixed below 1%. Their payment increase could be hundreds of pounds per month, depending on loan size and term remaining.

3. High loan-to-income borrowers are especially vulnerable

Those who stretched incomes during the low-rate era are now encountering stricter affordability testing and higher repayment expectations.

4. Household budgets are already tight

Living costs have risen considerably, and lenders have noted that many families are facing reduced financial flexibility compared with previous refinancing cycles.

5. More borrowers are seeking lender support

Banks are preparing for increased contact from customers needing guidance as their fixed terms expire — especially those at risk of missing payments or failing affordability tests.

Who Is Most Likely to Feel the Strain?

• Borrowers with large mortgages - Even modest rate increases translate into substantial monthly rises for those with high loan balances.

• Families who bought recently - Homeowners who purchased during the pandemic boom — and locked in low rates — are now refinancing for the first time in a higher-rate environment.

• Households already impacted by rising living costs - Budgets with little slack are more exposed as mortgage payments rise.

• Borrowers with high loan-to-income ratios - Stricter affordability rules mean some may find fewer competitive refinancing options available.

Industry Response: What Lenders Are Expecting

Lenders anticipate:

• A rise in customers needing advice and support

• More homeowners requesting payment plan adjustments or product transfers

• Higher demand for specialist mortgage products

• An increase in borrowers needing tailored guidance around affordability and refinancing routes

Internal analysis across the lending sector indicates a growing pool of borrowers facing meaningful financial stress as their fixed rates expire.

Preparing for the End of a Low Fixed Rate: Key Considerations

Homeowners facing the end of their fixed term should assess their position as early as possible. Key considerations include:

1. Reviewing your mortgage options early - Many borrowers delay reviewing their deal until close to expiry, losing valuable preparation time.

2. Running accurate repayment projections - Understanding exactly how your monthly repayment will change helps avoid financial shocks.

3. Considering the full cost of products - Fees, incentives, and loan structure can significantly shape the total cost of a new deal — not just the headline rate.

4. Speaking to your lender sooner rather than later- Early communication ensures more options, especially for borrowers who anticipate affordability challenges.

Final Thoughts

The end of 2020–21’s ultra-cheap mortgages marks a major shift for the housing market. With 350,000 households expected to see their payments rise sharply, the impact will ripple through family budgets, refinancing behaviour, and overall market confidence.

This is not just a rate transition — it’s a structural shift. For many homeowners, preparation and early planning will be the key to navigating the next phase of the mortgage cycle with stability.