Around 970,000 borrowers who secured fixed-rate deals below two per cent back in 2021 now confront what analysts describe as a severe refinancing challenge, experts have warned.

The surge in rates follows the outbreak of war in Iran, which has prompted lenders to push up their pricing.

This has left households who benefited from historically cheap mortgage deals during the pandemic era exposed to a dramatic shift in their monthly outgoings.

The average two-year fixed mortgage climbed above five per cent last week for the first time since August 2025, while five-year fixed products reached 5.1 per cent. Standard variable rates stood at 7.24 per cent as of Friday.

According to Compare the Market, homeowners whose five-year fixes are ending this year could see their annual repayments jump by as much as £5,652 if they move onto the average variable rate.

Those opting for a new five-year fixed deal would still face additional costs of at least £2,300 annually.

Some borrowers secured remarkably low rates in 2021, with certain five-year fixes dropping to just 1.17 per cent at their lowest point.

Charlie Evans of Compare the Market said borrowers exiting ultra-low five-year arrangements were confronting an “even more severe” rise in their yearly costs than previously anticipated.

“These households were already on track to see average annual repayments rise. But with rates climbing further… these borrowers are potentially facing a stark refinancing shock,” he said.

Fresh figures from Savills revealed that UK homeowners spent a record £114billion on mortgage costs during 2025, equating to roughly £13,000 per household each year.

This represented an increase of £4.8 billion compared with the previous year and more than £40 billion higher than 2021 levels.

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The estate agent noted that households coming off longer-term fixed arrangements had borne the brunt of elevated mortgage expenses.

Lucian Cook of Savills warned that global developments this year meant housing costs were likely to climb further still.

“Until recently, 2026 looked set to offer some respite, but that is now less certain given the prospect of another wave of inflation which mortgage markets are typically quick to price in,” he said.

Lenders pulled 530 mortgage products from the market last week amid concerns over inflationary pressures from the Middle East conflict.

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Moneyfacts said this marked the largest withdrawal since the fallout from Liz Truss’s mini-Budget in September 2022.

The Office for Budget Responsibility has indicated inflation could reach three per cent by year end rather than the two per cent previously forecast, potentially forcing the Bank of England to hold or increase its current 3.75 per cent base rate.

Adam French, head of consumer finance at Moneyfacts, said: “The destination is now heavily dependent on how global markets and inflation expectations evolve in response to the conflict in the Middle East.”