Jodi, 42, a teacher from Kent, is among millions of homeowners who are yet to be affected by the higher cost of borrowing, as their fixed deals at much lower interest rates are set to expire this year.
“Our mortgage payments will go from £1,400 per month to £2,100,” Jodi said. “Our wages are stagnant and the cost of living is ever increasing. We are both public sector workers – my husband is a police officer – so have had real-term pay cuts for years. How are we supposed to find an extra £700 per month?
“It’s just sleepless nights and blind despair.”
Homeowners face £19bn rise in mortgage costs as fixed-rate deals expireRead more
Jodi and her husband are among scores of people who shared with the Guardian how they will be affected by substantially higher mortgage costs after their old deals expire, and what they are trying to do to prepare. Most were from the south of England, particularly London, where many younger householders and families have vast outstanding mortgage loans as house prices are high.
The arrival of cheaper fixed-rate deals from various big UK lenders this week will alleviate the anxiety of some homeowners, in particular those with substantial levels of equity in their properties as deals for such mortgages are dipping below 4% interest.
However, for many householders the new lower rates will bring limited relief. Nina, 53, a freelance advertising producer, bought a two-bed flat in Hackney Central with her husband in October 2019 with the government’s help to buy programme.
“What we probably should have done was pay off more [while interest rates were low], do some overpayments, but we just never did. We were riding on the low interest wave, like so many other people,” Nina said.
About 55% of UK mortgages have been moved on to a higher interest rate since borrowing costs started to rise in December 2021, and another 5m mortgages are expected to be repriced by 2026.
Having “staircased” – gradually buying additional shares of their property – the couple have two separate mortgages on their home. “Unfortunately, we’ve had to renew the larger part of our mortgage back in November, and refixed at 5.59% until January 2026, up from 1.25%,” Nina said.
“The smaller mortgage is at 1.45% until 31 January, so we’re hoping for something like 4.59% on this when we renew, so that’s fab news for us.
“Every bit will help, but we worry that we won’t have enough money to cover the mortgage. We’re expecting our new monthly mortgage to be in the region of around £3,000 up from £2,000. I have savings, but am spending them on living, as I’ve been looking for work since August.
“It’s stressful. My husband has two kids he needs to support as well. If I’m not in work by May, we’ll be in dire straits.”
The couple decided to rent out their spare room on Airbnb and have been cutting back wherever they can.
“I’ve been applying for jobs I’m overqualified for,” Nina said, “and took on cat-sitting jobs over Christmas, paying around £500. But it’s all quite scary when you’re already feeling like you’re at your limit.”
For Amy, a 30-year-old finance professional from London, the era of higher interest rates means the future she and her partner had mapped out is no longer affordable, and all they can do to prepare for higher borrowing costs is to abandon their plans.
In January, the couple’s three-year fixed rate of 1.76% will be replaced by a new rate of 5.95%, fixed for two years at the end of last year.
“Our mortgage repayments will rise from £1,500 a month to £2,500. This is our first property, a new-build two-bed flat, bought for £480k and with a 5% deposit. This isn’t a property that will increase in value, I think we’ll sell at a loss,” Amy said.
“Because of these interest rates, we’ll repay £60k over the next two years, but only about £8k of these repayments will be equity building [the rest is on interest], and future big life decisions will be impacted.
“My mental health has been significantly affected. Our quality of life will decrease, but most importantly our ability to save for our next house has been severely curtailed. This leaves us in serious doubt whether we can afford to have a child, as we can’t save for things such as taking maternity leave and putting a child in a £2,000-a-month nursery, which is the standard cost here now.”
Amy’s concerns about interest rates making raising a family in the capital unaffordable is a concern for higher-income families too, including 43-year-old Matthew, a lawyer from London, who is in the top 1% of earners and hesitant to go for a new fixed deal while interest rates are still this high.
“We were lucky enough to have been able to borrow £1.2m to buy a normal family home on a normal street in north London,” he said.
“Our monthly repayments are currently £4.9k but are due to go up to £8.8k on the standard variable rate when our five-year fix ends in May. At that stage our lives will become unaffordable.
“We’ll have no choice but to stop paying into pensions, and plunder what little savings we have to cover the increased repayments until interest rates drop low enough to go through a fixed deal again. I feel shafted by the housing market, it’s absolutely ridiculous that effectively all of my income will go on housing costs. This is no way to live; it’s unsustainable.”
Some people decided they could not wait to see whether mortgage rates would drop. Jonathan Taylor, 61, a cybersecurity specialist from Odiham, Hampshire, said re-fixing his mortgage at the end of 2023 would have been unaffordable.
View image in fullscreenJonathan Taylor, 61, says higher interest rates will make his pension pot lose out on years of growth, as he has to access it early to pay off most of his mortgage. Photograph: Jonathan Taylor/Guardian Community
Having taken out a two-year fix at 1.08% at the end of 2021 on his outstanding mortgage of £236,500, his plan had been to pay it off by taking his tax-free pension lump sum at age 67.
“The interest element of my mortgage payments was set to increase from £236 a month to £1,905 from 1 January,” he said. “I just couldn’t afford this, so I decided to bring forward my pension drawdown in order to pay off most of my mortgage now, and took a lump sum of £200k last week. This will reduce the monthly interest payments to £460.
“However, drawing my pension six years sooner than planned will significantly reduce my overall pension, as the money can no longer accumulate as it did inside my previous employer’s defined benefits pension scheme.”
Taylor says he was projected to have an annual pension of £45,000 from age 67, but now, due to a combination of cashing his pension early and turmoil on the bond markets in the aftermath of Liz Truss’s government, it is looking to be £31,000 in today’s money, not accounting for inflation – “quite substantially less”.
“I wrote to my MP, [Conservative] Ranil Jayawardena, to warn that more people would be forced to take early retirement to access their lump sums to pay off mortgages. No reply.”
A representative from Jayawardena’s office said that a response letter had inadvertently been sent to Taylor’s old address.
This article was amended on 10 January 2024 to add a response from MP Ranil Jayawardena’s office.
