UK homeowners face average rise in annual mortgage payments of £2,900 next year
MILLIONS of British families will be hit by “a prolonged and historic mortgage crunch” if interest rates rise as much as expected, with those refinancing in 2024 facing a £2,900 (S$4,980) average increase in annual payments.
The Resolution Foundation, a think-tank in London, said on Saturday (Jun 17) that annual mortgage repayments are forecast to be £15.8 billion higher by 2026 than was the case before the Bank of England (BOE) started lifting interest rates in December 2021.
Analysts at the foundation said that as recently as May, the annual rise in repayments was estimated at £12 billion. The effect of higher rates has increased in recent weeks, though, amid signs of particularly stubborn inflation in the UK, with market forecasts rising to levels seen during the fallout from the disastrous “mini-budget” delivered under then-prime minister Liz Truss last autumn.
The BOE is expected to lift rates by at least 25 basis points to 4.75 per cent this week, with markets pricing in a terminal rate of 5.75 per cent or even 6 per cent in 2024.
Millions of UK homeowners are on fixed-rate mortgages that expire in the next couple of years and will need to be refinanced at higher rates. The average two-year fixed-rate mortgage is expected to hit 6.25 per cent later this year, and to not fall back below 4.5 per cent until the end of 2027, the foundation said.
“The bad news for the government is that three-fifths of the mortgage pain is still to come,” the foundation said in its report. Repayments are predicted to shoot up by £5 billion in 2024, when Prime Minister Rishi Sunak is likely to call an election.
Still, fewer Britons have mortgages compared with previous eras when interest rates soared. In 1989, with Margaret Thatcher still in Downing Street and interest rates peaking at nearly 15 per cent, almost four in 10 households owned a home with a mortgage, according to the report. Today, fewer than 30 per cent have a mortgage, as many older people have paid off their loans and rocketing house prices have prevented young adults from getting onto the housing ladder. BLOOMBERG
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