Daniel Norris, Elio Cucullo and Vasilis Jacovides

When borrowers enter a fixed-rate mortgage, lenders test whether they could continue to afford their mortgage if interest rates were to increase by the time it comes to re-fix. This ‘stressing’ is designed to create additional resilience for borrowers and the financial system. Over the last two years, mortgage rates have increased by over four percentage points, raising the cost of repayments for those re-fixing. We look at UK mortgage data and compare the stress rates applied at origination to rates available to borrowers when re-fixing. We find that the vast majority of borrowers who came to the end of their fixed terms in 2023 faced new mortgage rates which were lower than those they had been ‘stressed’ at.