Millions in UK brace to remortgage on worse deals as rate rise looms

A fixed-rate mortgage keeps the interest rate unchanged for an agreed period. Coming off the deal means that period has ended. The borrower must then choose a new mortgage, called remortgaging, either with the existing lender or another provider. The new deal may have a different rate and monthly payment.

For example, a household whose fixed contract ends in 2027 could compare new fixed-rate offers or move to another type of mortgage. If market rates are higher than when the original deal began, the household may pay more each month. The Bank of England’s base rate and financial-market swap rates help influence mortgage pricing.

This matters because 2.3 million households are expected to reach the end of fixed rates next year. Thousands more are due to switch in late 2026. A rate rise could make refinancing more expensive, adding pressure alongside higher energy and food bills.

The article identifies about 3 million households facing a mortgage switch across the relevant period. Around 700,000 were forecast to move onto new rates between July and December 2026. A further 2.3 million households are expected to reach the end of fixed-rate deals in 2027.

The larger group is therefore next year’s borrowers. Their existing fixed contracts expire, requiring them to seek new mortgage terms. If replacement rates are higher, monthly payments can rise. Those rates are influenced by swap rates and can also be affected by changes in the Bank of England’s base rate.

The timing creates a concentrated financial risk. Households switching in late 2026 already face higher borrowing costs, while millions more could face them in 2027. The article also reports falling mortgage approvals, suggesting that higher costs are discouraging potential buyers before this larger refinancing wave arrives.

When a fixed-rate mortgage expires, the household must refinance at the rates then available. If interest rates have risen, the replacement mortgage can require larger monthly payments. That leaves less money for food, energy, saving and other spending. It can also make buying a home less attractive.

For example, a borrower leaving a low fixed-rate deal could face a higher rate after the Bank of England raises its base rate. Fixed mortgage prices may also rise because swap rates have increased in volatile bond markets. The article links that volatility partly to energy prices and inflation fears connected with the war in the Middle East.

The wider outlook is already difficult. The OBR forecasts a 0.6% fall in household disposable incomes next year after inflation. Higher mortgage payments would deepen that squeeze, alongside food and energy costs. Four quarter-point rate rises are priced by markets, although many City economists expect only two.

Fixed-rate mortgages are priced using longer-term market borrowing costs, not only the Bank of England’s current base rate. Swap rates are an important influence because they reflect what financial markets expect interest rates and funding costs to be over the mortgage’s fixed period. Lenders adjust offers as those market prices move.

In this case, bond-market volatility has pushed swap rates higher. The article connects that volatility partly with energy prices and inflation fears linked to the war in the Middle East. Lenders can therefore raise the prices of new fixed mortgages even while the official base rate remains unchanged.

The Bank’s base rate has not changed since December last year, but fixed-rate borrowers have still faced market pressure. An increase in the base rate could push fixed rates and wider household costs higher again. Mortgage approvals fell to a near three-year low in September as borrowing costs jumped.

The base rate is the Bank of England’s main official interest rate. It influences the cost of borrowing across the economy, including loans and mortgages, and the return available on some savings. The Bank’s nine-member Monetary Policy Committee, or MPC, sets it when deciding how to respond to inflation and economic conditions.

If the MPC raises the rate, borrowing generally becomes more expensive. Households may reduce spending, and businesses may delay investment or hiring. Weaker demand can reduce pressure on prices. If the MPC cuts the rate, borrowing can become cheaper, supporting spending and activity. These effects take time and do not control every mortgage rate directly.

The article says the MPC is widely expected to raise the rate from 3.75% to 4% on 5 November. Inflation reached 3.5% in September, above the Bank’s 2% target. The Bank is also watching whether higher prices feed into wages and become embedded.

Higher oil and energy prices initially make household electricity, heating and fuel more expensive. But energy is also an input used by transport, factories, shops and many services. Businesses facing higher costs may raise their prices, spreading the shock through the economy. Households then face higher prices for more than energy alone.

A second route involves wages. If workers need more money to cover rising living costs, employers may raise pay. Businesses may pass those higher labour costs into prices. The Bank of England calls this a possible second-round effect: rising prices can influence wages, which can then help keep inflation embedded.

The article says the energy price shock is expected to push consumer inflation to 3.5% this year, above the earlier 2% forecast. Historically high oil prices, linked to the closure of the Strait of Hormuz, have fed into rising inflation. The MPC is watching whether wage pressures develop.

The Bank of England’s main reason for raising rates is to reduce inflationary pressure. Higher borrowing costs can slow household spending and business investment. That weaker demand may make it harder for businesses to keep raising prices. The goal is to prevent a temporary energy shock from becoming persistent inflation.

The Bank is especially watching for second-round effects. If workers seek higher wages after prices rise, and businesses pass those wage costs on, inflation can become embedded. Governor Andrew Bailey has said the MPC is monitoring this process. Raising rates can restrain demand and help prevent that cycle, although it cannot directly produce more oil or energy.

The trade-off is severe. Higher rates can increase mortgage payments, reduce disposable incomes and weaken economic growth. The OBR expects incomes to fall 0.6% next year, while official growth forecasts have been cut. Even so, the article reports expectations of a rise from 3.75% to 4%.