Britain on track for a £26bn mortgage hike, think tank predicts

The number of mortgages on the market nosedived following the mini-budget.

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More than five million households are predicted to see their annual mortgage payments rise by an average of £5,100 between now and the end of 2024, according to a think tank.

Some £1,200 of the average increase predicted reflects higher expectations of interest rate rises since the “mini-budget”, the Resolution Foundation said.

The number of mortgages on the market nosedived following the mini-budget. Lenders have gradually been bringing back new deals but have priced their rates upwards.

On Friday, Moneyfacts.co.uk counted 3,112 mortgage products available, compared with 3,961 on the day of the mini-budget.

The average two and five-year fixed mortgage rates on the market are at their highest levels since 2008, standing at 6.47% and 6.29% respectively.

On Friday, Moneyfacts.co.uk counted 3,112 mortgage products available, compared with 3,961 on the day of the mini-budget.
On Friday, Moneyfacts.co.uk counted 3,112 mortgage products available, compared with 3,961 on the day of the mini-budget.

The Foundation, which is focused on improving the living standards of those on low-to-middle incomes, emphasised that its mortgage cost estimates are “very sensitive to fiscal, as well as monetary, policy developments in the months and years ahead”.

While some homeowners on variable rate deals will see their costs increase immediately, the impact on the majority of mortgaged homeowners, who are on fixed-rate mortgages, will build over the coming years as they move off lower rates on to new deals, the Foundation said.

By the end of 2024, 5.1 million mortgaged households – or nearly a fifth of households across Britain – will be spending more on their housing costs as a result of increases in mortgage rates since the third quarter of 2022, according to the research.

Affected households in London will see the biggest increase, with average payments projected to rise by £8,000 over this period – more than twice the level of the £3,400 increase experienced by households who are impacted in Wales.

The impact in London will be concentrated, however, as less than a fifth (19%) of households there have a mortgage.

In total, mortgage payments are set to rise by £26 billion a year by the end of 2024, the Foundation said.

The think tank also said that, although higher income households will face the biggest increases in mortgage costs in cash terms on average, it is lower income families with mortgages that face the biggest increase as a share of their income.

By early 2025, half of all mortgaged households, or 3.8 million in total, will have seen higher mortgage costs absorb at least 5% of their net household income, including around two million households who will have lost at least 10% of their household income, according to the projections.

Some households may be able to avoid higher costs by, for example, using savings to reduce their mortgage balance, or by downsizing to a less expensive home.

The Foundation said it also noted that a higher interest rates climate will create “winners” as well as “losers”, with higher rates potentially benefiting retired savers and those who are saving up to buy their first home.

Prime Minister Liz Truss during a press conference in the briefing room at Downing Street
Prime Minister Liz Truss during a press conference in the briefing room at Downing Street

The report added: “Regardless of how the future unfolds, it is fair to assume that higher interest rates will cause not only (often serious) problems for a very large number of households, but have significant political ramifications as well.”

The Foundation’s analysis also indicates that there was a smaller share of mortgaged households among Conservative voters in 2019 compared with Labour or SNP voters, at 33%, compared with 40% and 41% respectively.

The report added: “However, close to four in 10 voters in ‘red wall’ seats at the last election were mortgaged homeowners.”

Lindsay Judge, research director at the Resolution Foundation, said: “Households across Britain are currently living through an inflation-driven cost-of-living crisis as pay packets shrink and energy bills rise.

“The Government has responded with policies such as the welcome Energy Price Guarantee. But the Bank of England is responding too by raising interest rates, which will benefit savers but cause a fresh living standards crunch for mortgaged households across Britain.

“Between now and the next election, Britain is on track for a £26 billion mortgage hike as over five million households see their annual mortgage payments rise by £5,100 on average.

“With almost half of all mortgagor households on course to see their family budgets fall by at least 5% from higher payments, the living standards pain from rising interest rates will be widespread.”