Remortgage volumes driven by fixed-rate expiries
The increase in refinancing was driven largely by borrowers coming off fixed-rate deals. Approximately half are estimated to be those who took out five-year fixed-rate mortgages in 2021, when rates were at historic lows. Although these borrowers face the sharpest rise in rates, five years of capital repayments will have reduced their outstanding balances, partially mitigating the impact.
The change in monthly payments for any remortgaging borrower depends on both the gap between their old and new interest rate and the proportion of the loan already repaid. UK Finance noted that even those facing the largest rate increases are spending roughly 5% less of their income on mortgage repayments than first-time buyers, reflecting income growth and accumulated repayments since their original loan.
First-time buyer costs at 16-year high
Conditions remain difficult for first-time buyers. In June, initial mortgage repayments for this group averaged 22.6% of gross income — the highest proportion since 2008. UK Finance said affordability pressures for first-time buyers are likely to persist in the near term, given ongoing economic uncertainty.
Mortgage payments as a share of gross income (%)
First-time buyers vs home movers, June 2022 – June 2026.
Source: UK Finance
The trade body has recently proposed that regulators consider raising the cap on high loan-to-income lending from 4.5 times income to five times income. UK Finance argued the change would expand access to mortgages for creditworthy first-time buyers without materially increasing systemic risk.
Remortgage stress remains contained
UK Finance said it does not expect remortgaging to generate widespread affordability problems. Despite uneven wage growth across borrowers, the organisation said the financial impact of higher rates on those refinancing this year is likely to be limited.