Our five-year fixed mortgage ends in May and looks set to rise by £671 a month - what can we do? DAVID HOLLINGWORTH replies

My wife and I are extremely nervous about our upcoming remortgage. 

Our current 2.04 per cent five-year fix ends in May next year and we are now reading that mortgage rates are rising again.

Although we have paid off a large chunk of the total amount over the last five years, our monthly costs look set to rise from £1,784 a month to £2,455 a month next year, based on what I can see online.

We started with a £480,000 mortgage and that will have dropped to £419,000 by the time we remortgage in May next year. 

We are financially just about making do but we would have to cut back on holidays and do some serious budgeting to cope with the higher costs, which is going to be tough on our kids.

How soon should we start a new mortgage application and what sort of length of deal would we be wise to consider? 

It's lucky we went for the five-year fix last time, but maybe a two-year fix might be better this time given where rates are?

What are the chances of mortgage rates being higher or lower next year? And what about in two or three years?

Mortgage help: Our column sees broker David Hollingworth answering your questions 

David Hollingworth replies: There are some sobering numbers here and you will not be alone in facing the harsh realities of the current rate environment, as existing fixed rates come to an end. 

Five years may not seem a long time but a lot has happened with interest rates in that time.

Borrowers had inevitably grown used to ultra-low fixed rates of 1-2 per cent, as base rate had been held at a record low level before it began to climb at the back end of 2021.

Since then, interest rates have been on something of a rollercoaster ride, so the good news is that you’ve been sheltered from some extremely volatile periods including the rapid rise in inflation, interest rates and the infamous mini budget.

The bad news is that we remain in a market where rates continue to be extremely volatile and mortgage rates can shift quickly, as the geopolitical backdrop alters. 

At the beginning of the year, the forecast was for base rate to fall for the rest of the year but the outbreak of hostilities in the Middle East has changed and fixed rates have been rising.

When can you take action?

You are doing the right thing in thinking ahead so that you can understand the range of options on offer.

Shopping around for the best deal on the market will ensure that you are getting the best rate you can. 

Mortgage offers are typically valid for up to six months, so it’s possible to start that process towards the end of this year.

Your current lender will also offer you some new rates but depending on the lender, those may well not be available until three or four months before the end of your current deal. 

You may therefore want to look at what you can get from the market in late November or early December. 

That could secure the best rate available at that time and would protect against any further interest rate rises to come.

This won’t prevent you keeping tabs on movement in the market. If rates do ease back then you could switch to a different deal, either with a new lender or your existing one. 

An adviser will be able to help you, not only in pinpointing a deal but also in monitoring the options as the end of your existing deal approaches.

Extending the mortgage term or switching some, or all, of your mortgage to interest only would reduce the monthly cost. 

However, it costs substantially more in interest in the longer run, so isn’t a decision to be taken lightly.

Product choices on offer

The right choice of deal is another decision that is full of uncertainty. 

As you say the five-year fix has served you well, however, there will be many that hope that the economic situation will improve. 

For example, a deal that opens up the supply of oil would take out a good deal of the inflationary pressure that threatens to force interest rates up.

That could improve the range of fixed rates on offer very quickly. 

That could help build a case for a shorter term fixed rate, to leave you free to review it again after a couple of years in the hope that rates have come down.

There’s no guarantee it will pan out like that in reality of course. A fixed rate of five years or longer would give you more stability and avoid more nail biting if interest rates remain higher. 

However, if rates do reduce you could feel like you’ve been left sat on a rate that looks high in comparison.

The alternative is a base rate tracker which will look cheaper currently but will follow interest rates up if they rise. 

With forecasts of anything between two and four base rate hikes, you’d need to prepare for higher costs to come. 

Given the fact that you feel that there will already be plenty of belt tightening to do, being subject to base rate fluctuation doesn’t feel like an obvious fit when certainty and stability is likely to give you a stronger chance to plan.

Action plan

Overall, your plan should be to start looking seriously at rates six months before the end of your deal. A broker will help you lock a rate in and will also keep you abreast of how rates move from then.

It feels like a fixed rate, not variable, will be the preferred choice for what will inevitably be a tricky time. 

If you want to have another chance to review sooner rather than later, the shorter-term fixed rates will be the winning option but don’t rule out the benefit of longer-term stability when so much is uncertain.

GET YOUR MORTGAGE QUESTION ANSWERED 

David Hollingworth is This is Money's mortgage expert and a broker at L&C Mortgages - one of Britain's leading specialists.

He is ready to answer your home loan questions, whether you are buying your first home, trying to remortgage amid the rates chaos or looking to plan further ahead. 

If you would like to ask him a question about mortgages, email: editor@thisismoney.co.uk with the subject line: Mortgage help

Please include as many details as possible in your question in order for him to respond in-depth. 

David will do his best to reply to your message in a forthcoming column, but he won't be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.