Borrowers Turn to Shorter Fixes and Extended Terms to Manage Costs

If your current fixed-rate mortgage is coming to an end, you're likely looking closely at how your monthly repayments might change. Recent broker survey data from HSBC UK shows that many homeowners are actively restructuring their loans to navigate the current interest rate environment.

Industry findings show a notable shift in borrower strategy, with a significant majority choosing shorter fixed-rate deals or extending their total repayment term to maintain monthly affordability.

Why borrowers are choosing shorter fixed rates

According to HSBC's Q3 Broker Barometer, 77% of surveyed brokers reported that remortgaging clients are opting for shorter fixed-rate products (Source #52). The primary driver behind this trend is the expectation that borrowing costs may fall in the medium term, leading homeowners to avoid locking into longer four- or five-year fixes.

Remortgage activity has also seen a marked increase, with applications rising 31% in a single quarter as a wave of mortgages fixed during 2021 reach the end of their term (Source #52).

Opting for a shorter fix, such as a two-year deal, offers flexibility to review your mortgage sooner if market rates drop. However, it's worth keeping in mind that refinancing more frequently means potential broker, arrangement, or valuation fees come around sooner.

Managing monthly outgoings through term extensions

For homeowners focused on keeping immediate costs down, extending the length of the mortgage term has become a common option. The survey revealed that 73% of brokers have clients choosing to lengthen their mortgage term to reduce monthly payments (Source #52).

• Lower monthly commitment: Spreading the principal debt over a longer timeframe reduces the required monthly outgoing.
• Long-term cost trade-off: While a term extension eases short-term cash flow, it increases the overall amount of interest paid over the life of the mortgage.
• Household budgeting: Alongside structural mortgage changes, 36% of brokers noted clients cutting back on household spending, while 30% reported borrowers making voluntary overpayments where possible to lower their balance faster (Source #52).

Market conditions for first-time buyers

Remortgaging is not the only area seeing shifts. The broker survey highlights ongoing pressure for first-time buyers, with 44% of brokers observing that securing a mortgage has become harder than it was a year ago (Source #52). Key hurdles cited include house prices (56%), interest rates (54%), and deposit requirements (49%) (Source #52).

As a result, 48% of brokers reported that more first-time buyers are relying on family financial support to bridge the gap compared to last year (Source #52).

Accounting for the full cost of homeownership

When considering your mortgage choices, it is important to evaluate your full monthly household budget. Beyond your core mortgage payment, ongoing costs of owning a home must be accounted for, including:

• Buildings insurance and ongoing routine maintenance.
• Council tax or local rates.
• Service charges and ground rent for leasehold properties.

Choosing between a shorter fix, a longer fix, or extending your loan term comes down to your personal priorities and risk comfort.

Next steps

If your current mortgage deal is due to expire soon, exploring your options early gives you time to make a planned decision. You can request an adviser callback or book a 30-minute mortgage review with Anderson Reed Financial Services to compare your current lender’s retention rates against the wider market and see which approach fits your financial plans best.

Your home may be repossessed if you do not keep up repayments on your mortgage.