Mortgage warning as interest rates tipped to rise

Consumer Prices Index inflation climbed from 3.1 per cent in August to 3.5 per cent in September, according to the Office for National Statistics.

This was its highest level in almost a year, above forecasts and further from the Bank of England’s two per cent target.

Martin Sartorius, lead economist at the Confederation of British Industry, said the figures meant a rate rise was “firmly on the table” at the Bank’s next meeting in November.

The warning comes as around 1.8 million fixed-rate mortgage deals are due to expire in the UK during 2026, according to UK Finance.

Bank of England figures also show that about 750,000 households will come off ultra-low fixed-rate deals below three per cent this year, leaving many facing a steep increase in their monthly payments.

Jinesh Vohra, chief executive of mortgage app Sprive, urged borrowers to take action instead of waiting for rates to fall.

“Homeowners can’t afford to sit back and wait for rates to fall,” he said. “Overpaying now can help reduce the balance and interest paid over time, putting homeowners in a stronger position whatever happens to rates.”

Mr Vohra added that those who use this period to reduce their mortgage balance “will come out well ahead of those waiting for rates to rescue them”.

However, borrowers considering overpayments should check the terms of their mortgage first, as limits or early repayment charges may apply.

Jamie Williams, property expert at Pure Property Finance, also cautioned against assuming that cheaper mortgage deals will become available next year.

“One of the biggest mistakes that borrowers could make heading into the new year is assuming that mortgage rates will fall, as it’s still all up in the air,” Mr Williams said.

He advised homeowners approaching the end of a fixed-rate deal to explore their options early. Many lenders allow borrowers to secure a new offer several months before their current agreement expires.

Mortgage rates have already reached a three-year high, increasing pressure on household finances.

Moneyfacts figures show the average five-year fixed mortgage rate reached six per cent in October, while the average two-year rate climbed to 5.98 per cent.

These increases have happened despite the Bank of England holding its base rate at 3.75 per cent. Mortgage rates can move before the base rate changes because lenders also consider financial market conditions and expectations about future interest rates.

The latest rates are a sharp contrast to the roughly two per cent deals homeowners could secure for many years. Major lenders have now withdrawn mortgage products priced below five per cent.

Data from the Bank of England and Uswitch suggests borrowers leaving older, cheaper deals face average monthly repayment increases of around £250. This would add approximately £3,000 a year to their household costs.

Higher fuel costs have been one of the main drivers behind the latest increase in inflation. Motor fuel prices jumped by 30 per cent in the year to September.

Petrol and diesel prices have been rising since the outbreak of the US-Israeli war with Iran squeezed global oil and gas supplies.

Sanjay Raja, chief UK economist at Deutsche Bank, said further energy price increases were “inevitable” and that tensions in the Middle East were delaying the prospect of inflation falling.

He expects the Bank of England to raise rates in November, followed by further increases in the months ahead.