The Bank of England published a staff working paper examining UK mortgage refinancing around the interest rate shock that followed the September 2022 mini-budget. Borrowers exposed to the shock became 11 percentage points more likely to select two-year rather than five-year fixed-rate mortgages, even though two-year products were about 10 basis points more expensive and provided less protection against future rate increases. The share of adjustable-rate mortgages also rose, but most borrowers continued to choose two-year fixes. The research links a 200 basis point increase in mortgage rates to a 2 to 3 percentage point decline in average loan-to-value ratios and finds that borrowers became less likely to switch lenders. The preference for two-year fixes is consistent with demand for short-term payment protection combined with the flexibility to refinance or extract equity sooner if rates fall. Supporting evidence shows that borrowers with two-year fixes are more likely than those with five-year products to extract equity in subsequent years.
2026-08-28Bank of England
Bank of England working paper finds UK borrowers favored two-year mortgage fixes and deleveraged after 2022 rate shock
A Bank of England staff working paper finds that UK borrowers shifted toward two-year fixed-rate mortgages and reduced leverage after the September 2022 rate shock. Borrowers favored shorter fixes despite their higher price, consistent with seeking rate protection while retaining flexibility to refinance or extract equity sooner.