Interest rates and living costs: how they affect mortgage affordability (remortgage guide)

Why interest rates and living costs matter for remortgage affordability

When you remortgage, lenders don’t just look at your existing mortgage balance. They assess whether you can afford the new repayments based on your income and outgoings, using their affordability models.

In periods where interest rates rise and household costs increase, affordability assessments can become more demanding. Even if you’ve been paying your current mortgage on time, changes in the wider economy can affect the way lenders calculate your “ability to pay”.

How affordability checks are typically calculated

While each lender’s method is different, affordability assessments usually consider:

Your income (salary, overtime, bonuses where accepted, and other regular earnings)
Your monthly committed spending (for example, credit commitments and existing loan repayments)
Your household expenditure (living costs such as utilities, council tax, food and transport)
The proposed mortgage payment (including the interest rate used in the lender’s assessment)

If the lender’s assumed repayments are higher than what they consider sustainable against your income, the application may be declined or the maximum borrowing amount may be reduced.

The impact of rising interest rates on repayment calculations

Interest rates can influence affordability in two main ways:

Your future repayments If you’re moving from a fixed rate to a higher-rate period (or to a different product), your monthly payment could increase.
The rate used in the lender’s assessment Lenders may stress-test affordability using a rate that reflects current conditions rather than simply the initial deal rate. That means even a “good” offer may still be assessed against a higher repayment scenario.

Fixed vs variable: what changes for affordability

Fixed-rate mortgages can help you budget because the interest rate remains the same for a set term. However, affordability is still assessed at the time of remortgage, and payments after the fixed period may be higher.
Variable or tracker mortgages mean repayments can change with market rates. Lenders may therefore apply assumptions that reflect potential movement in rates.

The impact of living costs on affordability

Lenders generally expect borrowers to meet everyday expenses realistically. When costs rise, affordability can tighten because:

Household bills increase (utilities, broadband/mobile, insurance)
Council tax and other local charges may rise
General day-to-day spending becomes higher than it was when your current mortgage was agreed

Even if your income hasn’t changed, higher living costs can reduce the “headroom” lenders allow when comparing your income to your total outgoings.

What lenders may look at in your remortgage application

For a remortgage, lenders typically focus on whether your finances support the new mortgage payments. Common areas include:

Income stability: how secure and consistent it is
Existing credit commitments: credit cards, personal loans, car finance, and other debts
Household expenditure: the level of regular spending the lender assumes or that you evidence
Property and loan-to-value (LTV): the amount you’re borrowing compared with the property’s value
Mortgage term: longer terms can reduce monthly payments, but may increase total interest paid

Planning a remortgage when costs are under pressure

If you’re considering a remortgage during a period of higher rates and higher living costs, planning can make a meaningful difference to how your remortgage is approached.

1) Review your current payment and what you’re likely to pay next

Start with a clear picture of:

your current monthly payment
the estimated payment under the remortgage option you’re considering
how your payment could change if you move to a different type of rate

This helps you understand whether affordability is likely to be the key issue, or whether other factors (like LTV or term) need attention.

2) Check your outgoings before you apply

Affordability is often determined by the details of monthly spending. Consider whether your outgoings are:

higher than they were when you first took the mortgage
likely to increase further in the short term
affected by debts or commitments that could be reduced

3) Consider options that can improve affordability

Depending on your circumstances, lenders may be more comfortable if the monthly payment is lower. Potential levers include:

Extending the term (where appropriate)
Borrowing less (for example, reducing any additional funds you’re seeking)
Choosing a structure that keeps repayments more predictable

4) Factor in remortgage costs

Even when you’re focused on interest rates, remortgaging often involves costs such as valuation, legal fees, and potential early repayment charges on your existing deal. These costs can affect the overall value of the remortgage.

Fixed vs variable for remortgage affordability: practical considerations

When deciding between fixed and variable options, it’s helpful to think beyond the headline rate:

Budget certainty: fixed rates can reduce the risk of payment shock during the fixed period.
Flexibility: variable products may offer different opportunities depending on how rates move.
Future affordability: if the fixed period ends and rates are higher, your payments could rise again.

A balanced approach is to choose a product structure that matches your ability to absorb potential changes in repayments.

Remortgaging with a new lender: what to expect

Moving to a new lender can be a sensible step when your current deal is ending or no longer competitive. However, affordability assessments still apply, and lenders will review your finances against the proposed mortgage.

Key factors that can influence the outcome include:

the interest rate and repayment profile used in the assessment
your income and stability
how living costs are treated in the lender’s model
your LTV and overall loan size

How to use this information to strengthen your remortgage position

Interest rates and living costs can change quickly, but your remortgage preparation can still be proactive. A well-prepared application typically:

reflects accurate, up-to-date financial information
accounts for realistic household expenditure
considers the impact of repayment changes on your budget
compares options with affordability in mind, not just the initial rate

Summary

Rising interest rates and higher living costs can make mortgage affordability checks stricter during remortgaging. Lenders assess your ability to meet repayments based on income, committed spending, and household expenditure, often using repayment assumptions that reflect current conditions.

If you’re planning a remortgage, focusing on affordability details—repayments, outgoings, and product structure—can help you approach the process with greater clarity.