UK Mortgage Reset Hits 1 Million Homeowners: Lloyds and NatWest Margins in Focus

What the mortgage reset means for borrowers

Around a million UK homeowners are coming off fixed-rate mortgage deals taken out when interest rates were far lower, and are rolling onto new rates that sit well above what they have been paying. Many locked in two, three or five year deals during 2021 and 2022, when the Bank of England's base rate was near record lows. Since then the base rate has been higher for longer, and even after recent cuts, new fixed rates remain above the deals expiring this year. For the households affected, monthly payments are set to rise, in some cases by a meaningful amount, squeezing budgets at a time when other living costs are also elevated.

Why it matters for bank stocks

This kind of mortgage reset is not a new phenomenon for UK lenders, it has been running in waves since 2022, and it has generally worked in favour of the banks that hold these loans. When a borrower moves off a cheap fixed rate onto a pricier one, the lender earns more interest on that same loan without taking on any new risk or writing any new business. That lifts net interest income, the core measure of a bank's lending profitability, for however long elevated rates persist relative to the old deals. The effect shows up gradually as different cohorts of borrowers reach their renewal dates through the year rather than all at once.

Which stocks, and why

Lloyds Banking Group and NatWest Group carry the largest UK residential mortgage books among the major listed banks, which makes them the most exposed to this repricing effect. As more of their back book of cheap fixed-rate loans rolls onto current market rates, both lenders should see some support to net interest margins from this specific pool of borrowers. The effect is real but bounded, it applies only to loans that happen to mature during this window, and it fades once that cohort has repriced. It is also only one part of a much bigger net interest income picture that includes savings rates, wholesale funding costs and the mix of new lending, so it should not be read as a guarantee of stronger overall results.

What to watch

Watch each bank's next trading update for commentary on net interest margin trends and mortgage book repricing, along with arrears and early repayment data, since a squeeze on borrower budgets can eventually show up as higher missed payments rather than only higher income. Bank of England data on mortgage approvals and average rates on new lending will also show whether the pricing gap between expiring deals and new deals is widening or narrowing.