Analysts at an independent think tank have warned that over five million households in the UK could see their annual mortgage rise by an average of £5,100 by the end of 2024.
The Resolution Foundation said that £1,200 of that figure will be from higher interest rates on the back of last month’s mini-budget, which added over 1.5% to the cost of the average two-year fixed-rate deal. The day before the announcement the average cost was 4.75%, while within days after it leapt to 6.3%.
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In the announcement’s immediate aftermath, mortgage lenders pulled over 1,000 mortgage deals from the marketplace. By the following Monday many had returned, but at much higher rates as markets feared the base rate may hit 6% next year after seven consecutive hikes from the Bank of England.
Following two major U-turns in government policy, however, that figure has been downgraded to 5.25%.
TRF said that those on variable rate mortgages will feel the pinch most quickly, affecting some 1.2 million homes. Those on fixed-rate mortgages, accounting for 85% of home loans in the UK, will notice the difference when their existing deal comes to an end, with around 1.7 million homeowners affected by the end of this year.
The Foundation calculated that 5.1 million households will be spending more on their mortgages by the end of 2024, with the average mortgaged household seeing their payments increase by £3,500 – just under £300 per month – between the end of this year and the end of 2024. By the end of 2024, they expect the rise to be £5,100, depending on the area.
Not surprisingly, the largest increases will be seen in London and the South East, with annual costs expected to rise by £8,000, putting it at more than twice the anticipated increase in Wales of £3,400.
Mortgage payments will rise to a total of £26bn by the end of 2024, says the think tank, with the research showing that lower-income families will be most affected, seeing the biggest increase in the proportion of their income they spend on their home. Half of all households will be paying an additional 5% of their income on their mortgage by the beginning of 2025, while two million may be paying an extra 10% of their income.
Resolution Foundation research director Lindsay Judge 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.”
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