More than 1.4 million households in the UK are facing the prospect of interest rate rises when they renew their fixed rate mortgages in 2023.
The majority of fixed rate mortgages in the UK (57%) coming up for renewal in 2023 were fixed at interest rates below 2%. Those deals that are due to mature through the course of 2024 will be from two-year fixed rate deals made in 2022 and five-year fixed rate deals made in 2019, when mortgage rates were generally higher than 2%.
Most fixed rate mortgage deals coming to an end in the next 12 months were set at interest rates below 2%
Number of fixed rate mortgages coming up for renewal by initial effective interest rate, UK, Quarter 1 (Jan to Mar) 2022 to Quarter 3 (July to Sept) 2024.
- The Bank of England transactions data do not include remortgages with the same lender and second-charge lending as such these estimates are likely undercounts. The Bank of England’s Monetary Policy Report - November 2022 found that just over 2 million mortgages will come up for renewal between Quarter 4 (Oct to Dec) 2022 and Quarter 4 2023.
- Interest rate bands are based on the effective interest rate for each group of fixed rate mortgages.
In the first quarter of this year (Jan to Mar 2023), 353,000 fixed rate mortgages will have to be renewed. Our calculations, based on Bank of England (BoE) transactions data, suggest that the number of fixed rate mortgage deals coming to an end in 2023 will peak in Quarter 2 (Apr to June) 2023 at 371,000.
BoE data also show that most mortgages are agreed at a fixed interest rate, where the interest rates stay the same for the duration of the mortgage deal, with 86% of outstanding UK mortgages being repaid at fixed interest rates in Quarter 3 (July to Sept) 2022. This is up from 51% in Quarter 1 (Jan to Mar) 2016.
While interest rates have been increasing since the start of 2022, most fixed rate borrowers have been insulated from those increases, as the majority were fixed at interest rates below 2% and are still within their fixed-rate period.
Those on a variable rate mortgage, where the interest rate varies over the course of the repayment term, will have already seen higher interest rates as a result of market conditions including rises in the BoE base rate (the "Bank Rate").
Most outstanding mortgages in Quarter 3 (July to Sept) 2022 are five-year fixed rate
Total distribution of outstanding mortgages held by UK Monetary Financial Institutions (MFIs) by type and period of initial interest rate, UK, Quarter 1 (Jan to Mar) 2016 to Quarter 3 2022
- Totals may not sum to 100 because of rounding
When borrowers remortgage in the near future it is likely to be at a higher rate of interest.
This can be seen in the Office of Budgetary Responsibility (OBR) expectations of the future path of the Bank Rate, which is expected to peak at 4.8% by the end of 2023.
The Bank Rate is the rate at which the BoE pays the commercial banks that hold deposits with it. The Bank Rate in turn impacts the rates that lenders use to set mortgage rates.
In its fiscal forecast, published in November 2022, the OBR predicted that the Bank Rate would rise from 1.6% in Quarter 3 2022 to 4.8% in Quarter 3 2023 and 4.5% in Quarter 3 2024.
Mortgage and Bank of England interest rates have been increasing since the start of 2022
Monthly average effective interest rate of all mortgages broken down by interest rate type and Official Bank rate, UK, 31 January 2004 to 15 December 2022
- Latest effective interest rate on mortgages data covers period up to 30 November 2022.
The BoE has been increasing the Bank Rate since the start of 2022 as part of its efforts to return inflation to its 2% target level. This has meant the Bank Rate increasing from 0.25% at the beginning of 2022 to 3.5% in December 2022, the highest this rate has been since October 2008.
As the Bank Rate increases, so have the rates at which borrowers repay their mortgages. This can be seen in the effective interest rate on variable rate mortgages which have increased over 2022 to rates not seen in more than a decade.
The additional costs facing those refixing their mortgages
The effective interest rate on outstanding mortgages with a fixed rate was 2.08% in November 2022, according to the BoE. This contrasts with an average interest rate of 4.41% on variable rate mortgages and quoted household interest rates on new fixed rate mortgages around 6%.
When mortgage rates increase, the cost of repayment increases. Looking at different indicative amounts left to repay on mortgages - from £100,000 to £500,000 - we can see the monthly costs that households may face in different scenarios with varying interest rates on the mortgage.
Should the interest rate on a £100,000 mortgage increase from 2% to 6%, assuming a 25-year capital and repayment mortgage, then the monthly mortgage repayment on the same mortgage would increase by £220 (from £424 to £644). However, assuming the same increase on a £300,000 mortgage, monthly repayments would rise by £661 (from £1,272 to £1,933).
The BoE's Financial Stability Report - December 2022 suggests that mortgagors on fixed rates set to expire by the end of 2023 are facing monthly repayment increases of around £250 upon refinancing to a new fixed rate.
The mortgage costs that households face depend on the amount they borrowed and the interest rate on their mortgage
Monthly mortgage costs at differing amounts of borrowing and different fixed interest rate
Source: Office for National Statistics - ONS
- The standard mortgage repayment formula used to estimate monthly costs assumes a 25-year repayment period for a capital and repayment mortgage
Download this chart The mortgage costs that households face depend on the amount they borrowed and the interest rate on their mortgageImage .csv .xls
How much could your mortgage increase by? The BBC has created a mortgage calculator as a guide.
Private renters are paying more in housing costs
Private renters are also facing an increase to their housing costs, with rental price growth at its highest rate in the UK since records began in 2016.
Around a quarter (26%) of all renters surveyed between 7 and 18 December 2022, reported their rent payments had gone up in the last six months, according to data from the Opinions and Lifestyle Survey (OPN).
Private rental prices paid by tenants in the UK rose by 4% in the 12 months to November 2022, up from 3.8% in the 12 months to October 2022, according to data from the Index of Private Housing Rental Prices.
In November 2022, UK private rental prices saw the largest annual percentage increase since records began in January 2016
Index of Private Housing Rental Prices percentage change over 12 months, UK and London, January 2016 to November 2022
Renters spend almost a quarter of their median weekly expenditure on rent
Increases in housing costs can be expected to affect households differently, depending on whether they rent or own their own home. In the year to March 2021, renters in the UK spent a total of £106.50 per week on rent once housing benefit, rebates and other allowances received were accounted for.
This is equivalent to 24% of their median weekly expenditure. Meanwhile, mortgage holders spent a total of £140.80 per week on mortgage repayments, equal to 16% of their median weekly expenditure.
While rising housing costs will affect households across the income distribution, they are more likely to disproportionately affect those who already spend a greater proportion of their household spending on housing costs.
Weekly expenditure on housing is highest for renters in the ninth income decile at £196.20 per week, while mortgage holders in this decile paid £161.50 per week.
When we look at this as a proportion of expenditure, renters in the second income decile spend on average the greatest proportion (30%) of their expenditure on rent. While for mortgage holders, those in the second income decile, spend a comparably smaller proportion of their total expenditure on mortgage repayments (18%).
We avoid using the first (lowest 10%) and tenth (highest 10%) income deciles as these can include, for example, households with low income but high wealth, which distorts the picture. Using the second and ninth decile provides a reliable picture of the financial experience of households at the lower and higher end of the income distribution.
Housing costs make up a higher percentage of total expenditure at lower income deciles
Percentage of expenditure on rent and mortgages by renters and mortgage holders at each income decile, UK, financial year ending 2021
- Renters include households that are social rented, private rented and owned by rental purchases.
- The figure included in total expenditure is net rent as opposed to gross rent. Net rent is calculated as gross rent minus housing benefit, rebates and allowances received.
- Income deciles are based on all UK households, which includes all tenure statuses.
- Rent and mortgage expenditure for primary dwelling.
It is important to note that total expenditure does not provide complete insight into household finances; it is not possible using these data to account for whether expenditure was funded through income, savings, or credit.
Read our bulletin Private rental affordability, England, Wales and Northern Ireland: 2021 for further insight into the experience of renters.
Around 4 in 10 of those with a mortgage are worried about changes in interest rates on their mortgage
While the method of securing accommodation differs, in these times of increased cost, both rent and mortgage payers have found them increasingly difficult to service, according to people asked in our latest OPN survey.
There has been a slight increase in the percentage of people surveyed who, when asked how easy or difficult it was to afford their rent or mortgage payments, said they found it somewhat difficult or very difficult, from 27% in the period 14 to 25 September 2022 to 31% in the period from 7 to 18 December 2022.
Additionally, around 4 in 10 (45%) adults with mortgages reported being very or somewhat worried about the changes in mortgage interest rates during the period 7 to 18 December 2022.
There has been a slight increase in those having difficulty in paying rent or mortgage
Reported affordability of current rent or mortgage payments, Great Britain, 14 to 25 September 2022 and 7 to 18 December 2022
- Question “How easy or difficult is it to afford your rent or mortgage payments?”.
- Base: among those who are currently paying rent or mortgage payments.
Despite slight increases in the difficulty in paying housing costs, 1% of mortgagors reported to be behind on mortgage payments and 7% of renters reported to be behind on rent payments in the period 7 to 18 December 2022.
Data from the English Housing Survey show mortgage arrears in England have historically remained low, being at or below 2% over the past 10 years.
For more information, see the Department for Levelling Up, Housing and Communities’ English Housing survey 2021 to 2022: headline report.
Measuring the Data
Opinions and Lifestyle Survey (OPN)
The latest estimates from the OPN are published on a fortnightly basis within Public opinions and social trends, Great Britain.
More quality and methodology information on the OPN and its strengths, limitations, appropriate uses, and how the data were created is available in the Opinions and Lifestyle Survey Quality and Methodology Information.
Living Costs and Food Survey (LCF)
The Living Costs and Food Survey (LCF) is a UK household survey designed to provide information on household expenditure patterns and food consumption. Data used in this article cover the financial year ending 2021 (April 2020 to March 2021). Further analysis of this can be found in the latest family spending bulletin.
For a more in-depth explanation of LCF processes and methodology, refer to the Living Costs and Food Survey QMI and the technical report.
Impact of coronavirus (COVID-19)
Restrictions put in place to slow the spread of coronavirus (COVID-19) impacted both spending trends (with certain activities and retail venues closed to the public for periods of lockdown) and data collection, with interviews carried out by telephone rather than face-to-face.
In addition, respondents were asked to provide copies of receipts (electronic or paper) for the two-week diary period; and interviewers recorded non-receipt based expenditure via additional regular telephone calls during the two-week diary period.
Further information on the effect of coronavirus on data collection is available in our Impact of COVID-19 on social survey data article.
Data included in this analysis
This article considers households that are renters and mortgage holders only. Retired and non-retired households are included in this tenure groups. The gross income deciles are for all households in the UK, which includes all tenure statuses.
Medians were used to minimise the impact of extreme values within breakdowns by tenure type.
All spending estimates are rounded to the nearest £0.10.
Household gross income
Income estimates are derived in line with the household gross income national statistics, however, they have not been adjusted to account for potential under-coverage of the highest earners. The income is unequivalised.
Gross income deciles
This release discusses income decile groups, or 10ths of households. Households for all of the UK, have been ranked in ascending order of household unequalised gross income (original income combined with cash benefits) then divided into quintile groups to examine expenditure patterns across income groups.
Income deciles divide the household income distribution into 10 equal parts. Households with the smallest income lie in the first decile and those with the largest income lie in the top decile.
Fixed rate mortgage: The interest rate on the outstanding loan amount remains fixed for a certain period of time. Typically, between two and five years.
Variable rate mortgage: The interest rate on the outstanding loan amount varies over the course of the repayment period because of changes in market conditions.
Effective interest rate: The weighted average of all the interest rates across each type of deposit or loan account held by all the clients within an economic sector.
Quoted household interest rate: The weighted averages for a range of lending and deposit products offered to households.
Capital and repayment mortgage: Mortgage is repaid through monthly repayments for an agreed period of time (known as the "term") until the loan amount is repaid. The term is usually 25 years.
Bank Rate: Sometimes called the "Bank of England base rate", the Bank Rate determines the interest rate that the Bank of England pays to Commercial Banks who hold money with them. This, in turn, influences the interest rates those banks charge people to borrow money.
Renters: Renters are householders who rent from local authorities and private landlords, furnished or unfurnished. Householders who are purchasing through rental purchase are also included in this category, in line with family spending (see our Family spending in the UK: April 2020 to March 2021 bulletin).
Mortgage holders: Mortgage households are households who own their property via a mortgage, in line with family spending.