Remortgaging to a Higher Rate: What It Means for Your Other Debts

Millions of homeowners who locked in a fixed rate a few years ago are now rolling off those mortgages onto significantly higher rates. For many, the jump in monthly repayments isn’t just uncomfortable; it’s pushing an entire household budget into difficulty.

When your mortgage payment rises by hundreds of pounds a month, other financial commitments get squeezed. Credit cards, personal loans, and overdrafts that were manageable at low rates often become a serious problem when your biggest outgoing increases overnight. Once you start missing payments or leaning on credit to cover everyday costs, the pressure tends to build fast.

If your fixed mortgage deal is ending soon, or you’ve already moved onto a higher rate and are struggling to keep up with your other debts, don’t panic; other options may be available to you.

How many households are affected?

According to the Bank of England’s Financial Stability Report, 4.4 million households are expected to remortgage to a higher rate between December 2024 and the end of 2027. Of those, 2.7 million are still on deals below 3% and face significantly higher repayments when their fixed terms end (with most coming off their current deals before the end of 2026).

Some may want to move to a better rate before their deal ends, although early repayment charges can make leaving early costly, so it’s worth checking the terms of your current agreement first.

The Bank of England projects that typical monthly mortgage repayments will rise by around £146, or 22%, for households remortgaging during this period. For some, the increase will be considerably more, depending on their outstanding balance and the rate they secured.

Two-year fixed mortgage rates peaked at 5.99% in October 2022, a considerable increase from being 1.2% in September 2021. Rates have eased since their 2022 peak, falling to 4.83% by January 2026 according to Moneyfacts, although market volatility has since pushed them higher.

What Happens When Your Mortgage Deal Ends?

When your mortgage deal ends, you can either stay with your existing lender or move to a new lender, though the rates available will depend on your circumstances at the time. Rates also vary depending on your loan-to-value ratio (LTV), which is the size of your mortgage relative to your property’s value. A mortgage broker can help you compare what’s available on the market.

Average mortgage arrears rose 69% in a single year, climbing from £6,054 in 2023 to £10,239 in 2024. That kind of increase doesn’t happen in isolation. When the mortgage becomes harder to service, everything else in the budget comes under strain as well.

How a Higher Mortgage Rate Affects Your Other Debts

When a major fixed expense increases, it puts immediate pressure on a household’s limited budget. People usually try to offset this by cutting back on essentials or discretionary spending, but if the gap is too large, it often leads to reduced debt repayments and greater financial strain.

Credit cards get used to cover shortfalls that used to be manageable from income. Minimum payments on loans get missed. Overdrafts that were rarely touched become a regular fixture. Buy Now Pay Later becomes a regular workaround. Each of those decisions makes sense in the moment, but over time they compound. Interest builds, balances grow, and what started as a temporary cash flow problem becomes a structural debt problem.

Mortgages typically carry a lower interest rate than unsecured borrowing, such as credit cards and payday loans. Once you start carrying a balance month to month, the interest over time adds up fast. A credit card balance of £5,000 at 24% APR costs over £100 a month in interest alone, before a single penny comes off the debt itself.

Missed payments can also damage your credit score, which affects your ability to access affordable borrowing down the line. A patchy credit history can make it harder to remortgage onto a competitive rate when your current deal ends.

This is the pattern behind many of the debt cases we see. The mortgage wasn’t the problem in isolation. But when monthly repayments increased, it became the trigger that made everything else unmanageable.

Can you remortgage to pay off debt?

Many people ask: can you remortgage to consolidate debt? A debt consolidation mortgage involves replacing your existing mortgage with a new one for a larger amount, allowing you to remortgage to consolidate debts into one monthly payment.

As a result, rather than managing multiple debt payments at different interest rates, you’re folding your outgoings into one monthly figure, often at a lower interest rate than unsecured borrowing carries.

Is it a good idea to remortgage to pay off debt?

When you decide to remortgage your home to pay off debt, you’re converting unsecured debts into secured borrowing. Credit cards and personal loans are unsecured, meaning they’re not tied to any asset. When you roll them into your mortgage, they become a secured loan against your home. So, if you fall behind on repayments, your property is at greater risk than before.

There’s also the question of overall cost. Even if a lower interest rate applies, spreading that debt over a 25-year mortgage term means paying significantly more overall. The monthly payment feels more manageable, but the total cost is higher.

Other Factors to Consider Before You Remortgage

It may not be possible to remortgage if your credit history has already been affected by missed payments. Applying for additional borrowing can also negatively impact your credit score and leave a mark on your credit file. Plus, your lender might require a minimum level of equity before agreeing to lend the additional amount, while the rates and terms available to you will depend on your LTV at the time of application.

Choosing the right approach means weighing up the full picture, not just the monthly payment. Expert debt advice and mortgage advice are two different things; for many people in this situation, both are worth seeking before committing to anything.

What are the options if your unsecured debts have become unmanageable?

One option available in this scenario is an Individual Voluntary Arrangement, or IVA. This is a formal, legally binding agreement between you and your creditors that lets you repay your debts at a rate you can genuinely afford over a set period, with any remaining qualifying debt written off at the end**.

Remember, your mortgage is a secured debt. It’s tied to your property, so it’s outside an IVA. An IVA won’t reduce your mortgage balance, change your monthly repayments to your mortgage lender, or protect you from repossession if you fall behind on your mortgage. Keeping up with your mortgage remains your responsibility throughout.

How an IVA Helps You Consolidate

An IVA can help you pay off your debts by addressing the unsecured debts that have built up alongside it. Multiple debts, including credit cards, personal loans, overdrafts and payday loans, can all be included in an IVA.

An IVA isn’t a consolidation loan, but it achieves a similar outcome for unsecured debt, bringing everything into one affordable monthly payment. Once approved, your creditors are legally bound by the arrangement and unable to chase you for payment. Interest and charges are frozen from the point of approval.

For households under pressure from a higher mortgage rate, stabilising your unsecured debts through an IVA can restore enough breathing room in your monthly budget to make keeping up with the mortgage more manageable. It doesn’t solve the mortgage increase, but helps remove the additional layer of unsecured debt repayments that are making everything worse.

What does an IVA mean for homeowners specifically?

Owning a property doesn’t prevent you from entering an IVA, but it does affect how long your IVA runs. The key factor is the amount of equity you have in your home.

Under the current rules, there’s no requirement to release equity from your home as part of an IVA. Instead, your equity level determines if your IVA lasts 5 or 6 years.

How Your Equity is Calculated

For IVA purposes, equity is calculated using 85% of your property’s current market value, minus your existing mortgage balance. If your share of that equity is less than £10,000, your IVA will run for 5 years (60 monthly payments). If it’s more than £10,000, it will run for 6 years (72 monthly payments).

Here’s how that works in practice:

Example 1: IVA runs for 5 years

Your property is valued at £100,000 and your outstanding mortgage is £80,000.

As your equity is less than £10,000, your IVA would run for 5 years.

Example 2: IVA runs for 6 years

Your property is valued at £100,000 and your outstanding mortgage is £50,000.

As your equity exceeds £10,000, your IVA would run for 6 years.

This is particularly relevant for homeowners remortgaging now. If your outstanding mortgage balance has increased, or your property value has shifted, your equity position may be different from what you’d expect. Your Insolvency Practitioner will calculate this when assessing if an IVA is suitable for you.

Talk to NDH Financial

If your mortgage repayments have increased and you’re struggling to keep up with credit cards, loans, or other unsecured debts, it’s worth getting a proper picture of where you stand.

NDH Financial is a licensed Insolvency Practitioner. We work with people across England, Wales, and Northern Ireland to assess if an IVA is the right option for their circumstances and, if so, we manage the entire process on your behalf.

Booking a consultation gives you clarity on your options and what an IVA would look like in your specific situation, including how your property is taken into account.