Locking in the rate or staying flexible? Mortgage refinancing around an interest

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate. Published on 28 August 2026

Staff Working Paper No. 1,203

Philippe Bracke, João F. Cocco, Elena Markoska and Purnoor Tak

This paper examines UK mortgage refinancing around the 23 September 2022 mini-budget interest rate shock, exploiting predetermined expiry dates of discounted two and five year fixed-rate mortgages. We find: (a) a shift toward two-year fixes, even though they priced above five-year mortgages; and (b) deleveraging, with a 200 basis points rate rise linked to a 2–3 percentage points drop in average loan to value ratios. Although the adjustable-rate mortgage share increased, most borrowers still chose the pricier two-year fix, consistent with seeking rate risk protection plus near-term flexibility for equity extraction if rates fall, an interpretation supported by evidence that near-term equity extraction is likelier under two than five-year loans.

Locking in the rate or staying flexible? Mortgage refinancing around an interest rate shock

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