Even as Rachel Reeves is forced to answer questions from MPs about increasing borrowing costs, there is a silver lining – and an opportunity to help clients
This morning the Chancellor had to take a detour from her planned China trip to explain to MPs why the wheels seem to be coming off her spending plans as borrowing costs soar. Things seem to be so bad for Labour that news is breaking that even Liz Truss has issued a cease and desist letter to Keir Starmer to stop blaming her for crashing the economy.
As the UK faces ongoing volatility in the financial markets, clients are nervous, but we are uniquely positioned as mortgage brokers to guide clients through the challenges arising from shifting borrowing costs. Nearly 700,000 homeowners are expected to face higher mortgage payments as their fixed-rate deals end this year, giving us the chance to show what an essential role we offer in helping clients navigate these changes.
“After Liz Truss’ budget we then saw a massive spike in the cost of mortgage rates and this could have a similar impact,” James Carpenter from BB Mortgages told Mortgage Introducer. “I mean, the thing with Liz Truss’s budget, they probably had seven to 10 days after that where rates then started to go up. So if you can lock a rate in, now's the time to do it would be definitely the thing that I would say.”
The recent sell-off in UK government bonds, driven by concerns over inflation and public borrowing, could significantly impact the housing market. Swap rates, a key metric for mortgage pricing, have climbed sharply, with two-year sterling interest swap rates rising from 4% to over 4.5% since mid-September. Consequently, many homeowners are bracing for increased monthly payments.
Data from Savills highlights that households remortgaging in 2025 will see an additional £1.27 billion added to their annual housing costs. For many, this comes on top of financial strain experienced in recent years, with rising rates already contributing to the cost-of-living crisis. The Bank of England has projected that owner-occupiers with fixed-rate mortgages set to end in the next two years could face an average monthly increase of £146.
While the share of households heavily burdened by mortgage payments remains low by historical standards, the cumulative effect of rate increases continues to tighten household budgets, limiting spending in other areas and slowing economic activity.
Opportunities for brokers
These challenges present a critical opportunity for brokers to provide value to their clients. By proactively engaging with homeowners whose fixed-rate deals are due to expire, we can explore strategies to mitigate the impact of rising costs. “What we try to do is to look at the current situation, look at if they can reduce mortgage balances by incorporating lump sums at this stage to try and get them into a better loan to value category and therefore a lower rate,” Jimmy Ireland, from Mortgage Focus, told Mortgage Introducer. “Some of them we are looking to extend terms as well, in order to help mitigate some of the rises. Others, we will look at different types of products to see if we can try and give them the balance between a good fixed rate as well as being able to plan for the future.”
- Exploring alternative products: With many two-year fixed-rate mortgages ending this year, brokers can guide clients towards competitive products that align with their financial goals. Borrowers on longer-term fixes, which are expected to remortgage at higher costs, may particularly benefit from expert advice.
- Tailored budgeting advice: For clients facing steep increases, brokers can assist in budgeting and restructuring to accommodate higher payments.
A mixed outlook
Despite the pressures, some homeowners may actually benefit from the current market conditions. Borrowers coming off two-year fixed-rate deals, many of whom locked in at peak rates, could actually see reductions in their payments when remortgaging. Savills estimates that approximately 340,000 of the one million fixed-rate deals ending this year fall into this category.
Conversely, the majority of homeowners on five-year fixed deals ending in 2025 are likely to see their monthly payments rise. “It is a challenging time for a lot of our clients, we have lots of clients who are coming to the end of five-year fixed rate deals having been on very low rates of 1% and 2%,” said Ireland. “So when we are then giving them an understanding of the rates as they are now, they're over 4% in most scenarios unless they pay high arrangement fees to get a slightly lower interest rate.”
The bigger picture
While rising gilt yields and higher mortgage rates dominate headlines, it’s crucial to view these developments as part of a broader financial landscape. The Bank of England’s cautious approach to interest rate reductions, coupled with inflation concerns, suggests that mortgage rates may remain elevated for some time. Yet, with expert guidance, many homeowners can find pathways to manage these challenges effectively.
For brokers, this is a time to demonstrate expertise and build lasting client relationships. By offering timely, personalised advice, brokers can help clients navigate the evolving market, ensuring they make informed decisions that safeguard their financial wellbeing.
