Five years ago this week, then Chancellor Rishi Sunak lit a fire under the property market with a generous stamp duty cut which prompted a home-buying boom.

With the pandemic less than three months old, buyers rushed off to buy bigger homes in a ‘race for space’ and took advantage of mortgage rates that had tumbled because of emergency Bank of England rate cuts.

Some will have fixed for five years below 1.5 per cent. Many stretched themselves to the limit on cheap rates to buy dream homes.

But now, almost a million households face a reckoning with ultra-low fixed rates coming to an end before the end of the year. It means they will need to fork out hundreds of pounds more per month to keep their home.

And for those who need to sell, the market is slow, with stamp duty rises in April helping to put the power back in buyers’ hands.

So, what can homeowners do as their mortgage bills are set to spiral? Money Mail looks at where they stand and gets expert advice.

What’s the state of play right now?

An estimated 900,000 households will reach the end of their existing mortgage deal between now and the end of the year, according to UK Finance.

Many will be coming off mortgage rates between 1 per cent and 2 per cent, taken at a time when interest rates were at rock bottom.

Five years ago, the Bank of England base rate sat at 0.1 per cent, compared to 4.25 per cent today. Now, for the most part, borrowers face the prospect of remortgaging to a rate of around 4 per cent or more.

The lowest five-year fixed rate in July 2020 was 1.09 per cent for those with a 40 per cent deposit, according to rates scrutineer Moneyfacts. Now, the lowest five-year deal is 3.87 per cent.

Borrowers face having to find hundreds of pounds more a month to cover higher mortgage bills – and that’s on top of the steep rise in the cost of living.

On a £200,000 mortgage with a 25-year repayment term, that’s the difference between paying £762 and £1,048 a month, Money Mail analysis shows. 

On a £400,000 mortgage with a 25-year repayment term, it’s the difference between £1,525 and £2,096 a month.

In total, £147 billion worth of household mortgages will need to be refinanced over the coming six months, according to Barclays analysis. 

That’s an almost 50 per cent increase on the same six-month period last year. For many, the mortgage represents the largest monthly outgoing.

Homeowners are being urged by experts to act swiftly by locking in a new deal ahead of a current one ending. They should also fix for the right length of time, get the best possible rate and explore ways to reduce other bills and spending if higher rates are going to cause a financial headache.

For those in the trickiest financial positions, deciding to sell and downsize may be the best option.

When should we remortgage?

Many borrowers don’t realise they can often apply up to six months before their current deal ends to lock in the rate.

Locking in means households can move seamlessly from one mortgage to another without falling into the expensive standard variable rate (SVR) trap.

The rates on an SVR can be as high as 8.83 per cent. These are the products homeowners are lumped on to if they fail to act.

A broker’s tip is to add arrangement fees to the mortgage, as they are then not paid until it is taken out. This means borrowers can secure a new fixed-rate mortgage in advance at no cost and only pay fees if they take it out.

Knowing exactly when the current deal ends is vital to avoid early repayment charges. It may not be as simple as being exactly two or five years from when the mortgage started.

How long should we fix for?

Households face an unenviable task when it comes to deciding how long to fix their mortgage for. Fixed rates of any length offer borrowers certainty.

Those opting for a shorter two-year fix are backing interest rates falling over the next couple of years, or at least staying steady, so that when it is time to remortgage their bills won’t rise.

With five-year fixes, borrowers are locking into rates they know won’t change for longer, perhaps either because they believe rates may rise or because they prefer the security. 

David Hollingworth, associate director at L&C Mortgages, says two-year fixes are slightly ahead in the popularity stake at present.

‘There are fixed-rate options right the way through to ten years or even for the life of the mortgage,’ he says.

‘However, the bulk still look for rates in the two to five-year sectors, with the balance tipped in favour of the shorter-term two-year deals.’

‘In terms of rate, the two and five-year deals are now close and there’s likely to be many borrowers hoping interest rates will fall further in the near term, which could give a chance of bagging a lower rate in two years.

‘The market clearly expects that interest rates will bottom out and stay there, given how close five‑year pricing is to the shorter-term options.

‘There has also been some pick-up in three-year deals, all too often overlooked but potentially offering a compromise for those unsure whether two or five years will suit them better.’

What about a tracker?

There are 591,000 households on tracker mortgages, according to UK Finance. These usually track the Bank of England base rate, plus a percentage. For example, base rate (4.25 per cent) plus 0.5 per cent giving an overall rate of 4.75 per cent.

Tracker mortgages are popular because some come without early repayment charges and can be paid off or switched away from without penalty.

If interest rates continue to fall, a tracker mortgage could therefore put borrowers in a position to take advantage.

However, for all the potential benefit, a tracker product will also leave people vulnerable to potential base rate hikes, while also starting out more expensive than fixed rates. While most financial forecasters suggest the Bank of England will cut interest rates, some are much more pessimistic.

At one end of the spectrum, analysts at both UBS and Oxford Economics are predicting base rate will fall to 3 per cent by the end of next year. But analysts at Heteronomics say base rate will rise to 4.75 per cent by that time.

What to do if payments jump?

Many borrowers face a sizeable jump in monthly repayments when they remortgage.

The average five-year fixed-rate deal was 2.25 per cent in July 2020, according to Moneyfacts. Now, it is 5.05 per cent. 

A £200,000 mortgage on a 25-year repayment term moving from a 2.25 per cent rate to a 5.05 per cent deal will see monthly costs jump from £872 to £1,175.

One option to lessen the pain of higher rates is to lengthen the overall term of the mortgage.

This is the number of years over which a borrower agrees to repay their full mortgage. By lengthening the term, a borrower spreads it over a longer period and reduces monthly costs.

However, while extending a mortgage term will reduce the monthly cost, it will ultimately mean paying interest for a longer period and more in the long run.

For example, someone with a £200,000 mortgage paying 4.5 per cent interest over 20 years would face monthly repayments of £1,265, paying a total of £303,672 over the lifespan of the mortgage. 

Someone with a £200,000 mortgage paying the same interest rate over a 40-year term would face monthly repayments of £899. 

However, they would pay £431,580 over the lifespan of the mortgage: £127,908 more than on a 20-year term.

Such a drastic option should be considered with extreme caution, but borrowers could choose to extend by a shorter period and still reduce monthly payments.

Another possible option for some borrowers is to switch temporarily to an interest-only mortgage. These mean borrowers only pay the interest each month, with the loan amount remaining the same.

But they must then find a way to repay the mortgage in full at the end of the term – usually through savings or investments, an inheritance or by selling the home.

Some people see interest-only mortgages as synonymous with irresponsible lending and reckless borrowing. However, while it won’t be suitable for everyone, if used responsibly an interest- only mortgage can be a temporary lifeline and provide breathing space.

However, if borrowers don’t have a plan to repay the loan eventually, they should switch back to a repayment mortgage as soon as they are able.

A £200,000 mortgage being repaid over 20 years on a repayment mortgage at a rate of 4.5 per cent will cost £1,265 a month. A £200,000 interest-only mortgage on the same basis would cost £749 per month.

But the fact you’re not paying down the debt will be a concern for many.

What are the best deals?

The lowest fixed-rate mortgage deals are just below 4 per cent, albeit these are reserved for households remortgaging with a large chunk of equity.

Nationwide Building Society cut rates last week on its home loan deals, following hot on the heels of Barclays, HSBC and Halifax which also announced rate cuts.

For those with at least 40 per cent equity, the lowest five-year fixed-rate remortgage deal is offered by Barclays at 3.93 per cent with £958 of fees.

As for the lowest two-year fix, NatWest has a market-leading 3.88 per cent deal with a £1,554 fee, closely followed by Barclays’ 3.91 per cent deal with a £958 fee.

The lowest three-year remortgage deal on the market is currently MPowered Mortgages 3.82 per cent rate, which comes with a £1,058 fee.

For those with slightly less equity in their homes, they may also be able to lock into a rate below 4 per cent. 

Someone with 25 per cent equity in their home could bag a 3.99 per cent two-year fix with Bank of Ireland, with a £1,084 fee, or a five-year fix with Barclays at 4.06 per cent with a £958 fee.

Should you stay or switch?

It may make sense to stick with your current lender rather than remortgage to another bank or building society.

Staying put is what is known as a product transfer. You simply move from one mortgage product to another with the same lender.

It may even be that your current lender is offering the best available deal. A product transfer can also mean skipping additional fees and admin.

It can also be faster than a remortgage. A product transfer will typically take a matter of days while a remortgage can take weeks or even months.

However, it’s always worth looking into remortgaging because you can often find a better deal by shopping around.

We’ll have to cut back to fund 50% rise in payments 

James Treacher, 39, a marketing contractor living in Warlingham, Surrey, bought his house for £450,000 at the end of 2020 with a 10 per cent deposit.

James was delighted to find out his home’s value has risen to £750,000, according to a recent estate agent valuation.

However, his delight was cut short, when it became clear just how much his mortgage is about to go up by.

From November, his mortgage rate will go from 1.9 per cent to 3.87 per cent, sending his costs up by £310 a month, from £1,490 to £1,800.

Having locked in a new mortgage offer at 3.87 per cent, he feels he has at least timed it as well as he could have.

James says he can manage the financial hit, but his outgoings rising by almost £4,000 a year is a worry for him in the longer term, particularly as his work as a contractor is never guaranteed. If work dries up for a few months, the extra cost would have a big impact.

‘It’s the compounding effect of everything going up that is making this a harder cost to swallow,’ he says. ‘All my insurance costs have risen, VAT is up and corporation tax.

‘My friends and I, who are also contractors, are very much living pay cheque to pay cheque.

‘There is so much fear about work suddenly drying up.

‘If we lose our jobs, then the question of how we pay our mortgages becomes a real issue.’

Roque Way, 32, who works for an IT company, bought his home in Brentford, west London, with his partner five years ago.

The one-bedroom flat, which they acquired with the Government’s Help To Buy scheme in 2020, has a 1.58 per cent mortgage. However, now they are remortgaging, the best rate they can get is 3.92 per cent.

Roque says this will see their monthly costs rise from £857 to £1,285, even with the part that will remain on the Help To Buy rate, which is currently 1.75 per cent.

‘I’m just glad we were sensible and didn’t over-extend ourselves by buying a two-bedroom flat five years ago – we would be in much more trouble,’ says Roque.

‘But the jump in costs is still going to have a big impact. Up until now, we have been splitting the mortgage costs between us, but it will now become too much for my partner when we remortgage, so I’m going to cover the extra.

‘For me, this will mean adjusting my lifestyle quite a bit and cutting back on various things. I’ll have to cancel my gym subscription for a start.’